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The International Consolidated Airlines Group (LSE: IAG) share price started the morning brightly, jumping 2% on today’s (1 August) first-half results. As someone who holds the high-flying growth stock, I was ready to celebrate another day in the sun – but what’s this?
As I settle down to write this around midday, the shares are down almost 2%. It looks like investors are having a rethink.
Growth still looks strong
I can see why they were initially impressed. The FTSE 100-listed owner of British Airways, Iberia and Aer Lingus reported a strong set of numbers. Revenue rose 8% year on year to €15.9bn in the six months to 30 June. Operating profit before exceptional items climbed 43.5% to €1.88bn. Earnings per share soared almost 70%. Not bad going.
Margins improved too, jumping from 8.9% to 11.8%. That’s thanks to its ongoing transformation programme and tighter cost control. Net debt dropped to €5.46bn, down from €7.52bn at the end of December. That’s given it more financial flexibility to reward shareholders. They’ve already had €1.5bn in dividends and buybacks this year.
British Airways and Iberia did especially well, with the latter benefiting from its presence on the booming Madrid-Latin America route. The only weak spot was Vueling, which saw a slight dip due to softer demand within Europe.
One reason for investor caution
Despite the robust performance, the company didn’t raise its full-year forecasts. That might have taken some of the shine off the results. Markets don’t like holding patterns.
The board said it still expects good earnings growth and better margins this year. But it also warned of ongoing geopolitical and economic uncertainty, not helped by Donald Trump reviving trade tariff threats, which earned three mentions in today’s statement.
Chris Beauchamp at platform IG reckons the share price may have peaked for now. “Once the shares cross 400p, the going gets much tougher.” They’re at 375p today.
With the stock already up more than 130% in a year, the gains might not come as quickly now. Beauchamp warned some investors may be locking in profits.
Aarin Chiekrie at Hargreaves Lansdown was more upbeat. He said British Airways’ dominance in a constrained London market gives it pricing power, and Iberia’s Latin American links are a plus. With fuel and other operating costs now forecast to come in lower, profitability could continue to improve.
Valuation still tempting
The shares still look cheap on a price-to-earnings ratio of just 7.9, roughly half the FTSE 100 average. But this is a volatile sector, exposed to shifting politics, oil prices, extreme weather and global economic cycles. That valuation gap won’t automatically close.
Analysts covering the stock are pencilling in a median 12-month share price target of 407p. That suggests a modest rise of around 8.5% from today’s level. That feels about right to me, given where things stand.
I’m not rushing to buy more, but there’s no way I’m selling. The market outlook is a little choppy and International Consolidated Airlines Group might be one to consider buying on a dip (as I did in April). Expect turbulence but aim to stick with it for the long haul.
