Since I last wrote about British Airways owner IAG (LSE: IAG), the share price has seen an 11% recovery. After a generally positive set of H1 results, I could be tempted into buying the shares in order to capitalise on the potential upside.

IAG shows promise

IAG followed through on its Q1 guidance of achieving profitability in the second quarter. Q2 was, in fact, the group’s first profitable quarter since the start of the pandemic, with an adjusted earnings per share (EPS) of 2.5c.

It was also pleasing to see revenue per available seat kilometres (ASK) and passenger numbers edge closer to pre-pandemic levels. Aside from that, IAG managed to improve its financial position slightly, reducing its debt by €688m, while receiving positive free cash flow.

Therefore, the view of achieving operating profitability by the end of the year is starting to become a realistic possibility. All signs are pointing towards an increasingly promising rest of the year for the FTSE 100 firm.

Striking deals

Apart from the much improved financial performance of the company, IAG also managed to quash fears of future strikes. The company managed to strike a deal with 16,000 workers for a 13% pay rise this year. This should alleviate fears of last-minute flight cancellations, at least for the time being.

Nonetheless, not all is as smooth cruising as it may seem. This is because Heathrow Airport has opted to extend its cap on passenger numbers until the end of October, with no more than 100,000 travellers per day, leading to cancellations of tens of thousands of flights. As Heathrow is the hub of IAG’s most profitable airline, I’m expecting this to impact H2 results.

As a result, CEO Luis Gallego revised the company’s outlook downwards. IAG now expects capacity to hit 78% of 2019 levels, as compared to the previous 80% that IAG had expected. From this, North Atlantic capacity (IAG’s most profitable routes) is now expected to hit 92% of 2019 levels in Q3, compared to the previous guidance of 95%.

Having reservations

While the future outlook for IAG still remains rather promising, I have my reservations regarding its potential upside. Although passenger demand still remains strong, I’m fearful that it’s only a matter of time before sky-high inflation, and a potential recession on the cards, starts hitting consumers harder.

Furthermore, IAG’s long-haul recovery continues to lag that of shorter trips. The continued travel restrictions in large parts of Asia, specifically China, is hindering its growth potential. And with China sticking to its zero-Covid policy, this avenue doesn’t look likely to recover any time soon. Business travel also still continues to lag, only hitting 60% of its pre-pandemic volume. Moreover, as the winter months approach, I’m expecting the number of holiday travellers to start winding down.

Even though IAG shares have the potential to grow plenty, my optimism is hindered by a cloudy economic environment. Overall costs still remain high and, most importantly, the company still has a mountain of debt to pay off, which is expected to increase going into the year end. For that reason, I won’t be investing in IAG shares.

The post Should I be buying IAG shares today? 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

John Choong has no position in any of the shares mentioned. 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.

The decline won’t seem to stop for IAG (LSE: IAG) shares. With the share price sliding to a one-year low, I might be tempted to see it as a buying opportunity. Nonetheless, given the state of its finances, I know it would be a high-risk, high-reward investment.

Terminal situation

IAG shares aren’t just trading at its one-year low. It’s also close to its five-year low of £0.91. What started off as a baggage system error last month has now evolved into something much worse. This is because staff shortages at airports have led to massive travel disruptions for British Airways, the biggest airline at IAG.

The airline had initially cancelled 650 flights in July, impacting over a 100,000 passengers. But to make matters worse, Britain’s biggest airline said today that another 10,3000 short-haul flights will be axed until the end of October. This is in part due to British Airways staff striking during the busiest period for the airline. Most of its check-in staff had received a 10% pay cut during the pandemic, but are yet to get their compensation fully reinstated.

This isn’t good news for IAG as it gets squeezed from both sides. Mass flight cancellations could result in the group falling short of its top line guidance. On the other hand, bigger paycheques to check-in staff will squeeze its bottom line even further.

The easy way out?

Sky-high inflation is starting take a toll on consumers’ wallets. Additionally, the Bank of England expects inflation to peak at 11% later this year. As such, consumers’ discretionary spending is expected to decline. Given that fares from airlines at IAG don’t exactly scream bargain, customers are more likely to turn towards budget airlines such as easyJet and Wizz Air. While its competitors also face a similar number of cancellations, they offer cheaper fares on average. This brings better value proposition to customers.

Delays expected for IAG

When IAG unveiled its Q1 results, it mentioned its aspirations to achieve operating profitability by Q2. However, given the current state of affairs, I view this to be highly unlikely. And even if it does manage to achieve such a feat, I don’t expect it to last for the rest of the year. Therefore, I anticipate delays on its route back to profitability.

More worryingly though, IAG has a mountain of debt (€19.6bn) to deal with. It doesn’t help either when its debt isn’t covered by its current operating cash flow nor its cash and equivalents (€7.9bn). If the FTSE 100 firm can’t deliver on its repayments, it’ll have to risk refinancing its debt, making repayments more expensive. This will likely sour investor sentiment further.

IAG shares are a in precarious position at the moment. There doesn’t seem to be light at the end of the tunnel and its balance sheet is in tatters. Moreover, its share price seems to be only going in one direction for the time being. Nevertheless, a report from Bloomberg stated that British Airways is nearing a deal with unions, which could mitigate staffing shortages and turn the airline’s fortunes around. That being said, I still won’t be buying IAG shares for my portfolio as I view it as too high of a risk. Instead, I’ll be investing in other companies that have better fundamentals.

The post Should I buy IAG shares if the price drops below £1? 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

John Choong has no position in any of the shares mentioned. 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.

International Consolidated Airlines Group (LSE: IAG) shares are currently trading at £1.15, and are down 25% this year. Given the current economic landscape, its stock could be in further trouble, and here’s why.

Excess baggage

From Covid, to inflation, and now airport disruptions, the travel industry can’t seem to catch a break, and this week has been one of the more disruptive ones. Staff shortages, technical difficulties, and rail strikes have served up a perfect dish of chaos for IAG.

On Monday, Heathrow Airport suffered a widespread problem with its baggage system. As a result, Heathrow requested airlines to cancel 10% of their flights from Terminals 2 and 3. Although IAG’s main hub is located at Terminal 5, this still affected the limited number of IAG services at T2 and T3.

To make matters worse, Gatwick Airport capped its daily operations to 825 flights a day in July, and 850 flights a day in August, due to staff shortages. This has led to delays and flight cancellations, with easyJet suffering the brunt of it. Nevertheless, I doubt IAG is spared from this as I’m expecting a number of its services to be impacted as well.

Three strikes and you’re out

Three weeks ago, British Airways check-in staff threatened to strike in July. This is because their pay has yet to return to pre-pandemic levels after salary cuts made during the pandemic. With the deadline fast approaching on 27 June, IAG is stuck between a rock and a hard place.

For one, the board could reinstate workers’ pay, but doing so would impact its already fine margins. To mitigate this, British Airways would have to increase its ticket prices, which might dampen demand and extend its route back to profitability.

On the other hand, not doing anything could be equally devastating. A lack of check-in staff might lead to further delays and cancellations, which wouldn’t be good for IAG shares. Seeing that British Airways is the group’s biggest revenue driver, a strike could impact IAG’s top line quite substantially.

Delayed departure

In its last trading update, IAG mentioned that it expects to achieve operating profitability by Q2. However, this seems to be increasingly unlikely. Apart from potentially having to fork out higher wages or lose millions in revenue, the FTSE 100 firm still has to deal with high oil prices.

Since its Q1 update, jet fuel prices have hit fresh new highs of $175 per barrel, which isn’t going to do its bottom line any favours. Additionally, the Consumer Price Index in May continued to hit 40-year highs at 9.1%. With fears of an impending recession, this is most likely going to dissipate the travel tailwind and send IAG shares even lower.

More importantly, IAG’s balance sheet is in a terrible state. Its debt-to-equity ratio sits at a staggering 2,318%, while its short-term assets can’t cover its short-term liabilities. Not to mention, its last reported free cash flow sits at -€885m. This rings alarm bells of a company that’s in big trouble. Therefore, I won’t be investing in IAG shares. Instead, I’ll be parking my money in other growth stocks that have better financials.

The post Could IAG shares be in further trouble? 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

John Choong has no position in any of the shares mentioned at the time of writing. 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.

Up and away?

I would have expected the IAG share price to lift off after it reported a generally positive set of Q1 results last month. The group managed to recover a substantial amount of its losses to €731m from €1.1bn a year ago. Total revenue before exceptional items was up by a whopping 485% year on year (Y/Y).

In addition to that, total passenger numbers saw an increase to 14.4m, alongside a 72% load factor (A measure of how full a plane is). Most importantly, IAG expects its operating results to be profitable from Q2 onwards, which is great news for investors. So, why’s the stock stalling then?

Sky’s not the limit

The negative sentiment surrounding IAG shares can be attributed to passengers being warned of major delays this week. Workers are carrying out a ballot over a potential pay strike. Check-in staff at Heathrow airport said that the company has refused to reverse a 10% pay cut imposed on them during the pandemic. Meanwhile, management pay has been restored to pre-pandemic levels.

Trade Unite, the trade union representing these staff disclosed that the industrial action ballot covers around 500 staff, and is expected to close on 27 June. An unfavourable settlement would most probably lead to strikes in July, which is IAG’s busiest period of the year. With a bottleneck of queues already building up outside several UK airports, this could very well hinder IAG’s route to profitability in the short to medium-term.

To make matters worse, the group is also facing shareholder pressure over a decision to decrease CEO Luis Gallego’s share compensation. IAG’s annual general meeting is fast approaching, and shareholders are not very keen on awarding its chief executive after the company posted enormous losses during the pandemic.

Flying blind

Nonetheless, do the positive figures from the group’s Q1 report make IAG shares investible for me? I think not. The conglomerate’s balance sheet still remains undesirable, as its staggering amount of debt is not well covered by operating cash flow. Despite IAG reducing its debt levels by 0.6% last quarter, a potential slowdown in customers may undo its recovery.

I expect travel tailwinds to slow down in the coming quarters as economic headwinds start to take shape. Inflation in April came in at 9%, and with further interest rate hikes expected, I am doubtful that passenger numbers will continue recovering at the same pace.

Although the lifting of lockdowns in China should see passenger numbers rise in Asia, oil prices have also risen. Oil is now hovering around $120 per barrel and will definitely have a negative impact on IAG’s bottom line. This sparks fresh concerns as to whether the company’s guidance of achieving operating profitability by Q2 is still a realistic possibility. As such, I will not be looking to invest in the IAG shares. Instead, I’ll be looking to purchase other shares that could benefit my portfolio with more financial security.

The post The IAG share price is down 15%. Should I buy? 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

John Choong has no position in any of the shares mentioned at the time of writing. 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.

Lloyds

As Lloyds (LSE: LLOY) continues its share buyback programme, the British bank has seen its stock price increase by 3% this week. A hawkish Bank of England has been stoking uncertainty surrounding Lloyds’ future. This arguably led to a number of director dealings happening this week.

Most notably, Lloyds’ CFO William Chalmers and Chief of Staff Janet Pope purchased a large number of shares. However, Group Corporate Affairs Director Andrew Walton and Scottish Widows Chief Executive Antonio Lorenzo also sold a substantial number of shares.

• Name: William Chalmers (Chief Financial Officer)
• Nature of transaction: DRIP shares
• Date of transaction: 20 May 2022
• Amount purchased: 168,865 @ £0.44
• Total value: £74,409.46

• Name: Antonio Lorenzo (Chief Executive, Scottish Widows and Group Director, Insurance and Wealth)
• Nature of transaction: DRIP shares
• Date of transaction: 19 May 2022
• Amount purchased: 884 @ £0.43
• Total value: £383.86

• Name: Antonio Lorenzo (Chief Executive, Scottish Widows and Group Director, Insurance and Wealth)
• Nature of transaction: Disposal of shares
• Date of transaction: 20 May 2022
• Amount sold: 250,000 @ £0.44
• Total value: £110,062.50

• Name: Vim Maru (Group Director, Retail)
• Nature of transaction: DRIP shares
• Date of transaction: 19 May 2022
• Amount purchased: 31 @ £0.43
• Total value: £13.46

• Name: Janet Pope (Chief of Staff and Group Director, Sustainable Business)
• Nature of transaction: DRIP shares
• Date of transaction: 19 May 2022 and 20 May 2022
• Amount purchased: 85,633 @ £0.44
• Total value: £37,735.00

• Name: Stephen Shelley (Chief Risk Officer)
• Nature of transaction: DRIP shares
• Date of transaction: 19 May 2022
• Amount purchased: 1,563 @ £0.43
• Total value: £678.70

• Name: Andrew Walton (Group Corporate Affairs Director)
• Nature of transaction: Disposal of shares
• Date of transaction: 19 May 2022
• Amount sold: 184,216 @ £0.43
• Total value: £79,986.68

IAG

The IAG (LSE: IAG) share price is up about 4% this week as the group announced a share buyback programme on Tuesday. Apart from that, a number of big director dealings occurred at IAG. Chairman and Iberia CEO Javier Sanchez-Prieto and CFO Nicholas Cadbury made the headlines. The latter had already received 1,473,207 shares as a part of IAG’s executive share plan, which will be vested in three tranches annually. Despite that, Cadbury still purchased more shares.

• Name: Javier Sanchez-Prieto (Chairman and CEO Iberia)
• Nature of transaction: Transfer of shares from one nominee account to another nominee account with no change of beneficial ownership
• Date of transaction: 23 May 2022
• Amount transferred: 181,014 @ Nil
• Total value: N/A

• Name: Nicholas Cadbury (Chief Financial Officer)
• Nature of transaction: Acquisition of shares
• Date of transaction: 24 May 2022
• Amount transferred: 254,979 @ £1.23
• Total value: £312,604.25

SSE

SSE (LSE: SSE) reported a decent set of numbers in its FY22 earnings this week. The firm generated profits of £1.5bn last year, and expects to make even more this year from high energy prices. But a windfall tax from the British government soured investor sentiment, sending the SSE share price down by almost 10%. Still, outgoing non-executive director Dame Angela Strank acquired a respectable number of shares.

• Name: Dame Angela Strank (Non-Executive Director)
• Nature of transaction: Acquisition of shares
• Date of transaction: 25 May 2022
• Amount transferred: 483 @ £18.49
• Total value: £8,929.14

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this article’s instance, Lloyds’ director dealings used the dividends they received on SIP shares to reinvest into further Lloyds shares. It should be noted, though, that dividend shares must normally be held in the trust for at least three years to get full tax relief. On the other hand, IAG’s CFO received free shares as part of his compensation package.

The post Director dealings: Lloyds, IAG, SSE appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Its fortunes changed when news emerged late last week that Russia had invaded Ukraine. The market’s response led to a 6.3% drop in the price on Thursday.

However, with the stock currently changing hands at around 148p — a slither of the 400p price we saw pre-pandemic — is now a good time for me to be adding IAG shares to my portfolio? Let’s take a look.

The reopening of borders

A major boost for IAG will be the recent reopening of borders around the world. As more and more countries have eased the restrictions placed on international passengers, this should allow the firm to see an increase in passengers over the coming months. Further, some countries have lifted restrictions altogether, for instance, Sweden and Spain. And the benefits they reap from doing so may entice other countries to follow suit. According to the International Air Transport Association, around 3.4bn people will fly in 2022 – nearly double that of 2020. As such, this makes me believe buying IAG shares at the current price could be a steal.

Further, and as my colleague Andrew Woods stated, IAG may benefit more than competitors when it comes to the increased travel we should begin to see. This is because, unlike EasyJet and Wizz Air that focus on short-haul flights, IAG also operates transatlantic routes – estimated to be worth $1bn annually to the firm.

IAG also released its full-year results last week. And the numbers were encouraging. While revenues were up 8.3%, its post-tax loss had declined by 57.7%. When considering buying the shares, these numbers do sway me.

The risks

There are risks, however. The most obvious threat to IAG remains the pandemic. While it seems that the worst of it is over, there’s still potential for it to cause disruption in the future. Any sign of this would most definitely mean a drop in the price of IAG shares. With this said, Boris Johnson recently announced that the legal requirement to self-isolate due to a positive case has ended, showing further how the UK is taking strides to move away from the pandemic. This will provide a boost for the business.

My verdict

So, while a threat linked to the pandemic remains, I’m optimistic about what the future holds for IAG. The firm will see big benefits from the increase in passenger volume this year, and trading for well below half of the pre-pandemic levels I think IAG could be a solid buy. Its full-year results also provide me with confidence. As such, I would be willing to add IAG shares to my portfolio today.

The post Should I be adding IAG shares to my portfolio? 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

Charlie Keough has no position in any of the shares mentioned. 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.

Half-year results

After the release of its HY21 results last Friday, IAG shares saw a 5% fall on the day. The standout figure for half-year was the total revenue, which was down 58% for the period. To add to this, half-year net debt saw a near 25% increase from the same period last year. Although one could have expected such results, with Covid-19 continuing to plague the capabilities of airlines to function at full capacity, investors clearly were not impressed by the results.

With this said, the Q2 2021 results provided some form of optimism. Total revenues were up 77% from Q2 2020, whilst its operating loss for Q2 saw over a 55% fall. Overall losses after tax for the period were also down over 50%. This shows that although Q1 results may have hindered HY figures, as restrictions have lifted during Q2, we have seen an improvement in IAG’s performance. This provides me with optimism for future performance as, if more restrictions ease globally, volumes of passengers should rise. If so, the share price will more than likely follow suit, which means IAG shares at the current price could provide a great opportunity for me.

Looking ahead

Although it may be a while before we see full passenger capacity, the firm is taking steps towards it. The expected passenger capacity for Q3 is 45% of 2019 levels, a healthy increase on the 22% for Q2. This will massively boost revenues. I must note, however, that this is lower than some competitors have set out, highlighted by my fellow Fool G A Chester.

A reduced capacity compared to competitors could be offset by the latest easing of restrictions. I say this because, for British Airways, which is owned by IAG, flights between the UK and US have historically been the most profitable. This means a ramping up of these flights should help recovery. With this said, the US is not yet accepting travellers from the UK or large parts of Europe, which could impact the volume of this flight path.

Is IAG a buy?

There is no doubt in my mind that long term, IAG will recover. Therefore, as a long-term investor, this could be a real opportunity. With the IAG share price currently at a fraction of pre-pandemic levels, I could argue that this is a buy. However, there are a few issues. Most notably, the pandemic will have long-lasting impacts on IAG – a standout being the level of debt it finds itself with. I would like to see how IAG performs for the rest of this year as we hopefully see more flight paths reopen. As such, I intend to keep IAG on my watchlist until then.

The post Should I buy IAG shares at the current price? 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

Charlie Keough has no position in any of the shares mentioned. 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.

Taking a quick look at International Consolidated Airlines Group‘s (LSE: IAG) share price lately, I’m beginning to spot some turbulence. Despite these blips on the radar though, this Anglo-Spanish airline holding company is up this year. As of 26 May, it is trading at around 202p, up an impressive 27% from 159p a year ago.

As an investor looking for a less volatile travel play, IAG shares might be just the ticket. Having seen its stock price crash land in February 2020 from an all-time high of 457p, could it still have plenty of runway to go?

Looking at IAG’s financials

IAG shares were the worst-performing in the FTSE 100 in 2020, and they tend to perform badly when the Footsie does.

It’s also no secret that money is tight as air travel remains restricted. In Q1 this year, IAG reported a net loss of €1.7bn. However, these losses were down almost 37% from Q1 2020. IAG’s liquidity also remains at an impressive €10.5bn, a slight increase from the same time last year. This is due to bond issuances, revolving credit facilities, and reduced costs. 

But there’s no ignoring the elephant in the room. Passenger capacity is running at 20% of 2019 levels. IAG is also anticipating a figure of 25% for the second quarter of the year.

IAG’s share price potential

Although airlines remain crippled, IAG can take some solace from a number of positives. Its cargo operations improved by 35% quarter-on-quarter, taking in revenues of €350m. Though this is but a small dent in the grand scheme of things, it’s an improvement nonetheless. What’s more, IAG has been investing in making its fleet more efficient. By dumping older plane models such as 747s, it could make profitability easier in the future. 

Also, as things stand, we are in the end game of this pandemic — touch wood. Vaccinations are proceeding in the UK at a rapid rate, with Europe beginning to catch up. This has led to a rapid reopening of the economy, with air travel returning across the globe. As one of the largest airline groups in the world by passengers carried, the only way is up from here — barring any renewed lockdowns. 

Risks to IAG shares

There are, unfortunately, too many risks to choose from to put them all down here. Even at the best of times, the aviation industry is a challenging one for investors. Volatile fuel costs, industrial action, geopolitical tensions, terrorism and the usual economic cycle are all headwinds.

What’s more, IAG’s stock price may suffer in the future thanks to its ever-increasing debt. By the end of March, net debt stood at €11.5bn, up 18% from last year. With air travel not expected to return to pre-pandemic levels until at least 2024, it will be hard for IAG to generate enough profit to actually pay this back before too much interest accrues. 

So, is IAG a buy?

Is IAG a buy? This is a genuinely tough one for me. On the one hand, I am a big fan of IAG; I believe it has weathered the pandemic well and that it is still cheap compared to all-time highs. However, its rising debt levels and the uncertainty around air travel just make it too much of a risk for my portfolio right now.

The post Should I Invest in IAG shares right now? 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

Jamie Adams has no position in IAG. 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.

Those who did bet on IAG shares will be celebrating right now, as its share price rebounds. It ended yesterday 25.48% higher, as news of Pfizer’s vaccine success brought the return to international flying a lot closer (or so we all hope). Impressively, the British Airways owner is up another 5% today, at time of writing, as the party spirit bubbles over into a second day.

So have I missed out on a great buying opportunity? The answer is yes, but I don’t despair. I think we still face an uncertain, virus-hit winter and this should give me plenty of opportunity to buy IAG shares at a bargain price.

This FTSE 100 stock is cheap today

By conventional valuation metrics, IAG shares are cheap today. They have fallen by around three quarters, year-to-date. Right now, the P/E ratio stands at just 1.2 times earnings (although it was only 4x or 5x times before the crisis).

Do not underestimate the damage inflicted on IAG and other carriers this year. Airlines have had to ground fleets, while continuing to cover huge servicing costs. Revenues have plunged, dividends have been wiped out, and customers refunded. In the third quarter, IAG posted a loss of €1.3bn. This level of carnage is not quickly reversed.

Normally a low oil price would be good for profits, but that doesn’t apply when planes aren’t fuelling. Today, Morgan Stanley acted to calm vaccine euphoria, warning that plenty of liquidity is required in 2021 for IAG shares to fly.

IAG also had to raise funds, but at least there was good news here. Investors snapped up its £2.5bn rights issue, with demand exceeding supply. Any investor who believes in the long-term potential of IAG shares isn’t the only one, it seems.

I’d buy IAG shares for the long haul

Right now, IAG shares look to me like a bet on whether Pfizer’s vaccine will work, which isn’t a done deal. The tests haven’t yet been peer-reviewed. Vaccines have to be manufactured and distributed. They must be kept in temperatures of minus 70°C. We do not know how long protection lasts.

Even if all goes well, it may be spring before we start to see the light at the end of the tunnel. On the other hand, people will be rushing to book flights the moment they can, judging by this summer, and forward bookings data could lift IAG shares higher.

I don’t have direct exposure to the airline sector, and would consider buying IAG shares today. They still look cheap but I would treat it as a long-term buy-and-hold. The next few months still look bumpy to me.

The post I’d buy IAG shares today then buckle up for a bumpy ride appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. 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.

I love buying household name FTSE 100 stocks at bargain prices, but I don’t think these two are good value.

The airline industry has been pulverised by the pandemic, and the headwinds remain strong. British Airways owner International Consolidated Airlines Group (LSE: IAG) now faces an uncertain future, as does every carrier.

Stock market crash victim

The IAG share price plummeted during the market crash in March, along with almost every other FTSE 100 stock. It staged a brief recovery as travel restarted, only to fall again as air corridors closed and flights were grounded.

Foreign tourism has effectively collapsed. Governments are extending travel bans rather than easing them. Even when things do open up, people may lack the confidence to book holidays. Millions won’t be able to afford it, if they lose their jobs as furlough schemes end this autumn. IAG won’t be the only FTSE 100 stock to suffer.

The group is lining up a £2.5bn rights issue to boost its balance sheet. It’s little choice, as it’s been burning through cash at a rate of £178m a week. However, this looks set to dilute existing shareholders by at least 50%. 

Many in the travel industry suspect it’ll take up to four years before normal service is resumed, with plenty of turbulence on the way. But you may find it impossible to resist today’s valuation of just two times earnings. That’s astonishingly low for a FTSE 100 stock. Just make sure you understand the high risks involved.

Another FTSE 100 share I wouldn’t buy

The IAG share price is down another 6% this morning as it’s hit by the controversy over the TUI ‘Covidiots’ flight from Greek island Zante. Some 16 people have tested positive after safety procedures were allegedly ignored. 

I’m not boarding IAG right now and the same goes for fellow FTSE 100 stock Rolls-Royce Group (LSE: RR), also down 6% today. Investors are still absorbing last week’s dismal results, which revealed a first-half pre-tax loss of £5.3bn.

As an aircraft engine maker, the group is collateral damage from the travel clampdown. It earns a large chunk of its revenues from servicing engines, with contracts based on hours flown. These, of course, have collapsed. Its Civil Aerospace business now faces massive restructuring as the group disposes of a fifth of its workforce, 9,000 roles in total, and looks to offload £2bn of assets. 

While many FTSE 100 stocks have recovered from the market crash in March, the Rolls-Royce share price has ground lower and lower. It’s down two thirds since the start of the year. Anybody who buys today must accept the danger that Rolls-Royce could launch a rights issue to boost its balance sheet, which could dilute your holdings. It’s too risky for me.

The post Stock market crash alert: these 2 FTSE 100 stocks are too risky for me right now appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. 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.