Competitors’ results

Industry giant United Airlines announced its 2021 Q1 results on Monday. These were unsatisfactory to say the least, with a net loss of $1.4bn. Operating revenue was also down by 66% compared to 2019, falling to $3.2bn. CEO Scott Kirby explained the pandemic had decreased demand by 80% for United Airlines, which was the primary source of its losses.

This disappointing report seems to have impacted the recent rally of airline share prices, highlighting the profitability problems most firms are still dealing with. Delta Airlines also fell 5% and American Airlines tanked 7% in reaction to the news.

IAG had already shared some disappointing news in late February in its Q4 results. Total revenue was down 69% while gross debt rose from €14.3bn to €15.7bn year-on-year. In addition to this, the total number of passengers carried was down 84%, which highlights the pandemic’s inescapable impact. This was felt most heavily through IAG’s Aer Lingus airline. But it wasn’t all bad news.

A more positive future outlook for the IAG share price?

Due to a massive reduction in flight numbers, IAG was able to trim a healthy 44% of operating costs. This has helped the firm build a stronger liquidity position than before the pandemic. This is great for it going forward as due to debts increasing, it’s essential to be able to counteract these with a stable cash flow position.

The firm also highlighted the positive response to the UK government’s roadmap for exiting pandemic restrictions. IAG’s British Airways saw bookings flourish in the immediate aftermath of the news. The firm won’t operate at full capacity any time in the near future, but the travel sector is likely to boom in the next year and beyond. People have been stuck in their homes and want to travel freely again. This is likely to benefit the IAG share price for years to come.

The IAG price-to-sales (P/S) ratio is 0.98. For comparison, competitors Delta Airlines and Southwest Airlines have P/S ratios of 2.2 and 3.91 respectively. A lower P/S ratio tends to indicate that a stock may be undervalued in comparison to its competitors. This metric points me towards buying the stock at the current share price.

My Verdict

It’s clear the airline industry has faced some turbulence. I believe the United Airlines results scared airline investors into dumping some of their shares in the wider sector. The results also highlighted that firms are still struggling and will continue to struggle with the impacts of the pandemic, even though normality may seem close. However, I would use this opportunity to grab some cheap shares for my portfolio, as I’m bullish about the travel industry’s long-term future.

The post The IAG share price fell 8% yesterday. Here’s why appeared first on The Twelfth Magpie.

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Dylan Hood owns shares in Southwest Airlines. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More traffic

Only last week, the group which also owns airlines Iberia and Vueling, as well as Irish flag carrier Aer Lingus posted some very encouraging traffic statistics for the month of June. Group traffic as measured in revenue passenger kilometres, increased by 3.9% to 22,878, compared to 22,021 a year ago, with overall capacity measured in available seat kilometres rising by 3.5% to 27,127.

Meanwhile, the passenger load factor, which measures how full flights are, edged higher from 84% to 84.3% for the month of June, helping to raise the overall load factor from 80% to 80.9% for the first half of the year. The total number of passengers carried last month climbed to 9,752, a 3.2% improvement from 2016, bringing the total number of passengers to 48,806 so far in 2017, 4.6% higher than the same period a year ago.

Brexit

The airline industry and the travel industry as a whole have been facing challenging times of late, with political and economic uncertainty, Brexit, and the subsequent volatility in the currency markets weighing heavily on many London-listed carriers. But International Consolidated Airlines has responded well, with cost-cutting and structural changes helping the group to increase profitability despite the recent challenges facing the industry.

This outperformance hasn’t gone unnoticed by the market, with the share price being propelled to 637.5p – the highest since 1998. But I believe the shares still offer good value for bargain hunters, with the P/E ratio at a lowly 7.4 for the current year to December, and falling to just 6.9 for 2018.

Housing shortage

Meanwhile, another London-listed firm easily outperforming the market over the past year is Redrow (LSE: RDW). The Flintshire-based housebuilder has seen its share price rise by no less than 80% over the past year and surpass the previous all-time high of 548p over a decade ago.

The FTSE 250-listed developer may be trading at record highs, but in my view the share price still has further to go. Don’t get me wrong, I’m not denying that recent political and economic turmoil brought about by Brexit will weigh heavily on the minds of potential investors. But I believe the continuing housing shortage will mean that housebuilders such as Redrow will see a steady increase in demand over the coming years, albeit at a slower pace.

And with analysts’ consensus estimates suggesting an 8% increase in underlying earnings over the next couple of years, I believe the firm still offers excellent value trading at a very appealing multiple of just eight times forecast earnings.

The post 2 great value stocks for successful investors appeared first on The Twelfth Magpie.

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• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Bank those profits?

With the shares changing hands at 530p earlier today, they’re certainly more popular than they were at 392p back in September. Those that took my advice will be sitting on healthy gains in the region of 35%. Sometimes it pays to be contrarian. So what now? Is it time to bank those paper profits and move on, or perhaps be greedy and hold on in the hope of further gains?

Well, the uncertainties around Brexit certainly haven’t put IAG’s expansion plans on hold. Earlier this month the group, which also owns Spanish airlines Iberia and Vueling, as well as Irish flag carrier Aer Lingus, decided that wasn’t enough to be getting on with, and announced the launch of a new low-cost long-haul airline based in Barcelona.

Hop on board

The new airline, curiously-named Level, will initially be operated by Iberia’s flight and cabin crew and will fly to Los Angeles, San Francisco, Buenos Aires and Punta Cana in the Dominican Republic. As the group’s fifth main airline, Level may eventually fly from other European destinations other than Barcelona.

To me that doesn’t sound like an airline that’s too worried about the strength of the UK economy, Brexit or the sinking pound. It sounds like an airline that’s shrugging off the uncertainties and confidently pressing ahead with its expansion plans. And why not? The latest set of traffic statistics showed a 2.9% increase in group traffic for the month of February, with capacity edging 2.2% higher.

Personally I think the shares still offer great value for investors. With our friends in the Square Mile expecting the group’s revenues to rise to €22.6bn this year and pre-tax profits closing in on €2.4bn, an earnings multiple of just seven seems far too cheap. In my opinion it’s still not too late for investors to hop on board International Consolidated Airlines.

Meet the Fokkers

Another FTSE 100 stalwart that looked undervalued to me back in September is GKN (LSE: GKN). The Redditch-based global engineering group has also outperformed over the last six months, gaining 12% since my last recommendation. With the share price now at two-year highs is it time to cut and run?

2016 was another successful year for the group, with sales up 22% and a strong performance from Dutch aerospace business Fokker Technologies in its first full year of ownership.

With military sales expected to improve this year and a strong commercial order book, I remain bullish on the group’s prospects for growth. Despite a 30% share price rise over the past year I think GKN is still a little undervalued at 11 times forward earnings.

The post These FTSE 100 stocks are trading at bargain levels appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Too cheap to ignore

International Consolidated Airlines Group (LSE: IAG) was one of the big casualties of the post-Brexit panic, losing a massive 23% of its value on the day following the historic vote. The group, which owns British Airways, Iberia and Aer Lingus, issued a statement the same day saying it didn’t expect the result of the referendum to have any material impact on the business in the long term, and said it continued to expect a significant increase in operating profits in 2016, albeit of a lesser magnitude than in 2015.

In July the group announced positive interim results with operating profit up almost 28% to €710m, compared to €555m reported for the first half of 2015. Within days it was revealed that Qatar Airways had increased its stake in IAG to 20% to take advantage of the attractive valuation and reiterated its confidence in the group’s strategy and management team. I’m with Qatar and agree that the shares are simply too cheap to ignore at just five times forecast earnings for the full year, supported by a solid dividend yield approaching 5%.

Exceptional events

Another airline yet to recover from the Brexit fallout is low-cost carrier EasyJet (LSE: EZJ), with its shares still trading 25% lower than on referendum day despite recent takeover rumours. The company’s third quarter update was somewhat disappointing with a fall in both total revenue and revenue per seat. But passenger numbers rose 5.8% to 20.2m, boosted by a 5.5% increase in capacity to 21.9m seats, and the load factor increasing to 92%.

Personally, I think the Luton-based airline has been a little unlucky with exceptional events such as the Brussels attacks, bad weather and air traffic control strikes leading to a higher-than-usual number of cancellations and affecting third quarter results. The shares offer good value with a forward price-to-earnings ratio falling to just 10 for the year to September 2017, and a healthy 5% prospective dividend yield. The current share price weakness presents itself as a buying opportunity for investors seeking a long-term recovery play with a good level of dividend income.

First choice?

Unlike IAG and EasyJet, the world’s largest tourism group TUI Travel (LSE: TUI) has enjoyed a two-month rally that has seen its shares gain 24% and more importantly regain all the ground lost in the wake of the EU referendum. Shares in the group, which owns a whole host of travel brands including First Choice Holidays and Thomson, look attractive at just 11 times earnings for the year to September 2017, and support a generous dividend yield of 5%. TUI travel remains a good choice for investors seeking a blend of solid income and long-term growth potential.

The post Snap up these FTSE 100 travel bargains before it’s too late! appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

InterContinental Hotels (LSE: IHG) today announced that it sold its Hong Kong hotel for $938 million (approximately £605 million). The sale is part of the hotel group’s transformation to becoming asset-light, by selling its property assets from its balance sheet. By operating hotels as opposed to owning the properties, IHG is able to generate higher returns on equity and return more cash to shareholders.

IHG seems to be selling its Hong Kong flagship hotel near the top of the market, allowing it to secure an impressive valuation of 22x operating profits. It will also continue to operate the hotel, by retaining a 37-year management contract for the hotel.

Since 2013, IHG has sold almost 200 hotels, raising gross proceeds of almost $8 billion, and returning more than $10 billion to its shareholders. Combined with proceeds of recent sale of InterContinental Paris – Le Grand, IHG could return an additional £1 billion to shareholders in 2016.

Shares in IHG rose 3.1% to 2,684 pence by morning trading. With analysts forecasting adjusted EPS growth of 13% to 114.6 pence in 2015, IHG currently trades at pricey forward P/E of 22.5.

Petrofac

Petrofac (LSE: PFC) won a major contract to build an oil pipeline in Kuwait, worth $780 million. The company’s engineering, construction, operations and maintenance (ECOM) division has secured many large orders, causing growth in its order book to outpace its rivals in the oil services sector. This is because of its focus on onshore developments in the Middle East, which has seen continued investment in new upstream and downstream projects, despite lower oil prices.

The company’s upstream earnings is likely to drag earnings lower though. Analysts expect underlying EPS will fall by 51% to 54.1 pence this year, which gives it a forward P/E of 18.8. Despite continued ECOM orders, Petrofac’s earnings outlook will remain relatively unattractive without a substantial recovery in the oil price.

International Airlines Group

Shares in International Airlines Group (LSE: IAG) rose 2.6% to 528 pence in morning trading, after Ryanair (LSE: RYA) said it would accept the airline group’s offer for its 30% stake in Irish carrier Aer Lingus (LSE: AERL).

This clears one of the last hurdles that could hold back a takeover from IAG. All the stands in the way of the tie-up is regulatory approval from Europe’s competition authorities. But, since regulators have allowed similar tie-ups in the past, it does not seem that regulators would block the deal or impose any strict conditions.

One of the main attractions of Aer Lingus to IAG is that it will gain Aer Lingus’s 23 valuable slot pairs at Heathrow. The airline group is looking at combining services to free up slots at Heathrow for more profitable long-haul routes; and expanding Aer Lingus’s long-haul route network, potentially transforming Dublin into a major European hub for transatlantic travel.

Building up Aer Lingus will take some time and require substantial investment costs; but IAG’s near term earnings outlook is attractive too. With a turnaround of of passenger numbers and cost savings with its Spanish operations, underlying EPS is set to grow 75% this year. Its forward P/E ratio is just 10.2, and analysts expect it will pay a prospective dividend yield of 2.3% this year.

The post Should You Buy InterContinental Hotels Group plc, Petrofac Limited & International Consolidated Airlns Grp SA On Today’s News? appeared first on The Twelfth Magpie.

More reading

• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• 2 cheap FTSE 100 stocks that have P/E ratios below 10
• What might Middle Eastern peace mean for the IAG share price?
• Up 119% but with a P/E of just 6.6% – what’s going on with the IAG share price?
• 3 UK stocks to consider snapping up if the stock market crashes this month

Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

easyJet is keen to shake off the negative image of being a budget airline. It has recently launched a new frequent flyer loyalty programme, in a bid to attract more business travellers and boost customer retention. It has also introduced flexible tickets, allocated seats, airport lounges and increased frequencies between business routes. So far, this strategy is working and other low cost carriers are following suit. But, there are risks that easyJet could lose its competitive edge, as it progressively offers a service level similar to those offered by the legacy carriers.

Rival IAG

Rival airline group IAG (LSE: IAG) is experiencing even faster growth. June passenger numbers grew 9.1%, on strong demand for its long haul routes, particularly to Americas and the Caribbean. A turnaround of passenger numbers for its Spanish airlines, Iberia and Vueling, helped to offset more sluggish growth for British Airways. IAG has a much lower load factor of 83.7%.

IAG’s lower load factors and slimmer operating margins means the increase in passenger will have a much greater impact on its earnings than for easyJet in the medium term. In addition, the airline group is set to benefit from multiple near term catalysts. This includes lower fuel prices, which will likely have a greater impact on IAG’s long haul routes; and its merger with Aer Lingus (LSE: AERL), which will see the airline group gain Aer Lingus’s 23 valuable slot pairs at Heathrow.

IAG’s forward P/E ratio of 10.0 also compares favourable to easyJet’s ratio of 12.4. With a lower valuation on earnings and positive near term catalysts, IAG seems a better buy to easyJet in the medium term.

Or Buy TUI and Thomas Cook Group?

Leisure travel companies, TUI (LSE: TUI) and Thomas Cook Group (LSE: TCG) are also beneficiaries of the increase in consumer spending on tourism. The terrorist attack in Tunisia in June and the crisis developing in Greece has affected investor sentiment with these shares; but the trend of rising tourism spending should continue unabated because of rising household disposable incomes. Weakness in sentiment in the short term should mean these shares are better buys.

TUI which operates hotels, resorts and cruises, in addition to travel agencies, saw revenues grow 7.3% in the first half of the 2014/5 financial year on the back of an increase in online bookings. TUI Travel’s recent merger with TUI AG, its German parent company, should bring in benefits from revenue and cost synergies, through retiring the ‘Thomson’ high street brand and sharing operational resources. 

The merger makes earnings comparisons difficult; but analysts expect adjusted EPS in 2015 to be 82.3 pence, which gives TUI a forward P/E ratio of 12.8. This ratio should fall to 10.5, with earnings growth of 22%, estimated for its 2016 year.

Analysts expect Thomas Cook’s adjusted EPS will fall by 5% this year, after a strong performance in 2014. But, this still implies a very attractive forward P/E ratio of 11.9. With improving leisure markets in its core market and continued restructuring efforts, adjusted EPS is forecasted to rise 30% in the following year.

The post easyJet plc Delivers Strong Growth In Passenger Numbers, But Are International Consolidated Airlns Grp SA, Tui AG Or Thomas Cook Group plc Better Buys? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.