It is increasingly likely that British Airways-owner International Consolidated Airlines Group (LSE:IAG) SA (LSE:IAG) will raise equity, according to Credit Suisse (NYSE:CS.), which has reduced its target price on the airline to 195p from 256p to reflect this risk.
The new target price is based on the assumption of a similarly sized and priced rights issue to the €2.7bn at 92 cents per share IAG launched in 2020, the Swiss broker said.
At the time of last year’s equity raising, IAG said it seeking to offset its net debt build up. Credit Suisse said its analysis assumes net debt of €13.5bn at end-December 2021, €6bn above the €7.6bn reported for end-2019.
Although IAG has said it is comfortable with liquidity and has ample access to reasonable-priced aircraft financing, the broker said it believes it is “prudent to factor in a degree of dilution risk” in the target price.
Credit Suisse has retained its ‘Outperform’ rating on IAG.
“We are conscious that until the transatlantic market re-opens unfettered, the IAG investment case will remain challenging, however we retain an Outperform rating as we continue to see it as one of the best ways to play ultimate air travel recovery across the value chain”, alongside Ryanair Holdings PLC (LSE:RYA), Wizz Air Holdings (AIM:WIZZ) PLC, Airbus Group (EPA:AIR) and Aena SME SA, the broker said.