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For me, the IAG (LSE:IAG) share price will go down like it did in 2024. I've circled around the stock repeatedly over the last 12 months but never had the courage to get into it.
In hindsight, I wish I had, given that IAG shares have risen a staggering 81.58% in the last 12 months. This makes the owner of British Airways the FTSE 100The fifth best performer.
On November 29, 2023 I wrote that IAG stock looked “ridiculously cheap, trading at just 3.8 times forecast 2023 earnings”. As a lover of cheap stocks, I was very tempted. So what stopped me?
Can this FTSE 100 recovery action continue?
The first obstacle was its enormous net debt. It amounted to a whopping €11.6 billion, a legacy of the pandemic, when fleets were grounded and it had to go into deep debt just to stay alive.
IAG had not paid dividends since Covid hit and although chief executive Luis Gallego had committed to resuming payments to shareholders once its balance sheet and investment plans were ready. “sure”He did not set a date.
Even then I could see the potential of IAG. Operating profits for the third quarter had just increased by 43.5% year-on-year to €1.75 billion with flights at 95.6% of their capacity.
But I made my choice and it turned out to be the wrong one. Here it is, in all its glory: “I'm sorry, but I'm not convinced. IAG remains exposed to uncertainty over oil prices, economic concerns and geopolitical tensions, and there are no dividends to compensate.”
That sound you can hear is the hollow laughter of my pitiful self-hatred.
The world is flying merrily again, especially in IAG's main markets in the North Atlantic, Latin America and within Europe. Revenues and profits are rising, while IAG manages costs with greater discipline, helped by harnessing efficiencies across its various brands, which include Iberia, Aer Lingus and Vuelo, as well as BA. And it has received an additional boost from the drop in the price of oil.
But has it flown too far and too fast?
The pre-tax profit for the first half, published on August 2, exceeded forecasts of 909 million euros. With free cash flow reaching €3.2 billion, Gallego announced that he would restart dividends. IAG's expected profitability is 2.99% in 2025. Not bad to start with.
IAG shares still look like good value to me, with a P/E ratio of 6.74. That's less than half the FTSE 100 average of 15.1 times.
There are still risks. While the U.S. economy appears healthy, Europe's is not. And airlines will always be vulnerable to geopolitical threats, natural disasters and economic crises.
IAG still owes a considerable €7.77 billion. That figure is expected to fall to €6.97 billion in 2025. It is being paid off faster than expected. But my biggest worry is being too late to the party. The recovery is already discounted.
Twenty-five analysts have set one-year share price targets for IAG, with the average figure being 295.3p. That's only 3% more than today.
It's bad enough that I couldn't buy the stock a year ago. I'd feel even sillier if I jumped in late just as they backed away. Luckily, I can see plenty of other FTSE 100 stocks I'd like to buy right now. Maybe this time I'll actually buy them.
