British Airways owner International Consolidated Airlines Group SA (LSE:IAG) shares do not currently offer “sufficient upside” and the company is expected to see lower airfreight in the coming year, prompting a downgrade in rating by analysts at UBS.
IAG shares, which are among only a few FTSE names popular with young UK investors, have risen by 48% over the past six months to the last close at 152.86p.
Scrutinising industry airfares, business travel intentions and customer reviews, the Swiss bank's analysts now expect that pent-up demand for leisure and recovering business travel “will be supportive for traffic growth” but says the company's airlines are predicted to benefit less than rivals such as Air France KLM and Lufthansa from Asian economies reopening following the coronavirus pandemic.
“While our pricing and capacity data is supportive, we think that long versus short-haul yield mix and consumer concerns may weigh during the second half of the year," the UBS analysts said. “Furthermore, airfreight is unlikely to see as strong a year as 2022 given additional capacity and lower expected demand."
The recent fall in fuel prices will result in “material upgrades” to forecasts but some of the benefit is anticipated to be passed on to consumers, they said.
Ahead of IAG full-year results, due on 24 February, the anal UBS analysts are forecasting earnings per share of €0.06 for 2022, while the estimate for 2023 has been hiked 25% to €0.22, both of which are above the wider analyst consensus.
“We see material positive pressure to consensus numbers for 2023e likely based on the recent fall in fuel price," the analysts concluded.
Given the forecast upgrades, IAG's share price target was raised to 180p from 165p but the rating was downgraded to 'hold' from 'buy'.