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IAG a new 'buy' for Peel Hunt on sterling, Brexit and fleet hopes

The British Airways owner was also raised to ‘outperform’ by analysts at MainFirst on Friday

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International Consolidated Airlines Group PLC (LON:IAG) is forecast to benefit from next week’s UK general election, bringing fairer weather for sterling and possibly Brexit, leading Peel Hunt to endorsed the British Airways’ owner with a ‘buy’ rating.

Helped by this recommendation and the broker setting a price target of 665p, IAG shares rose 1% to 553.6p in mid-morning trading on Friday.

Peel Hunt’s analysts highlighted three positive factors for the Anglo-Iberian airlines group, if the UK election result delivers a Tory majority as polls indicate. 

“The election result predicted by the polls will lead to a further recovery in sterling and a significant translational upgrade to forecasts,” the analysts said in a note to clients.

The pound this week soared to its highest level since May, cresting above $1.3100 as anticipation grew for an election victory for Boris Johnson’s party.

Pollsters reckoned the Conservatives were ahead of Labour by seven points on 42% to 35%, according to a survey by ICM published on Wednesday, which would increase the chances of Brexit being followed through, bringing some short-term certainty back to the economy.

“Whilst Brexit remains a challenge, concerns over low EU-27 ownership can be alleviated and the EU is offering a grace period,” the analysts said, with airline companies set to have seven months to comply on ownership once Britain leaves the EU.

IAG stopped making its shares available to non-EU investors this year, seeking to comply with strict EU rules that will require Europe’s airlines to be 51%-owned and controlled by EU entities, in order to be able to operate between any two airports in the European Economic Area (EEA).

Peel Hunt's analysts also said that updating its fleet of aeroplanes will make a “disproportionately large improvement in fuel efficiency” for IAG, which should result in further upgrades, “even though a proportion of savings are likely to be shared with customers and higher carbon costs”.

IAG was also raised to ‘outperform’ by MainFirst on Friday, which set a target price of 675.18p. The same broker also upgraded rival Ryanair PLC (LON:RYA) and raised the price target for easyJet PLC (LON:EZJ).

Quick facts: International Consolidated Airlines Group

Price: 671 GBX

LSE:IAG
Market: LSE
Market Cap: £13.31 billion
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