Citi and Panmure Liberum have both flagged significant undervaluation in International Consolidated Airlines Group SA (LSE:IAG) following the carrier's Loyalty Day investor presentation, where management set a medium-term earnings target of €1 billion for its loyalty division.
The loyalty business generated €593 million in earnings before interest and tax in 2025, implying near-doubling is required to hit the new target, though IAG set no specific timeframe for achieving it.
Citi said the trajectory looks broadly achievable given the 16% compound annual growth rate the division delivered between 2019 and 2025, and that a continuation of around 10% annual growth would reach €1 billion by 2030.
The bank argued that loyalty, as a standalone business, could be worth €10.5 billion to €13 billion on a 17x to 21x earnings multiple, assuming medium-term growth of 6% to 8% and a weighted average cost of capital of 9% to 10%.
That range would imply loyalty accounting for 40% to 50% of IAG's current enterprise value, leaving the rest of the group implicitly trading on just 3.4x to 4.1x enterprise value to earnings before interest and tax for 2026.
Citi said that multiple was far too low for airlines generating double-digit margins through a crisis, pointing to a substantial mispricing in the stock.
Panmure Liberum, which has a 'buy' rating on IAG with a 620p target price, drew similar conclusions, describing loyalty as an asset-light, high-margin, high-growth business whose earnings are materially less seasonal and less cyclical than the core airline operation, with free cash flow conversion above 100% and margins exceeding 18%.
The broker said there should be significant upside from expanding the membership base and improving engagement among existing members.
Both banks argued that loyalty, assessed on its own merits, should command a premium multiple, whereas it is currently being valued implicitly at a discount alongside the rest of the group, a structural anomaly they believe the market will eventually be forced to correct.
