IAG shares: Bulls vs. Bears

Bullish: Cliff D’RC

If you had asked me six months ago if I was bullish International Integrated Airlines Group (LSE: IAG) Share, my answer would have been a firm one No.. But a lot can happen in half a year and I’ve changed my mind since then. Why have I been positive on IAG stocks? Two reasons.

First, I started to see the light at the end of the Covid-1 tunnel. It may be the light of another upcoming train, but I see reason to be optimistic about the world economy. Extensive vaccination activities in the developed world now protect billions of people from the ill effects of coronavirus. Elsewhere, inoculations proceed at a slower pace, but in the end it should be caught. And the more people get vaccinated, the less the damage of Kovid-119. Eventually, if we win the war against the coronavirus, the demand for air travel will explode. It could also return to pre-2020 levels. And this is good news for the IAG.

Second, IAG shares have fallen so far since being finalized in March. As a price investor, I was drawn to beat-down stocks. But the IAG is currently incurring massive losses, so there are no fundamentals (profits, earnings and dividends) to manage my thinking. On March 16, 2021, IAG shares reached their 2021 inter-day high of 222.1p. On Monday, they jumped 10.9% to close at 165.86p. I said the stock could be stolen at 137.25p last Thursday. It has risen 20.8% in three trading days, so I’m betting to continue this trend!

Cliff D’RC has no position in International Integration Airlines.

Bearish: Alan Oscroft

Richard Branson famously once explained how to become a millionaire. You start with one billion, then start an airline.

Airlines, especially long-distance ones, enjoy less or no competitive advantage. They only compete almost 100% on price.

Still, if the business is cut short, it must be bought at a good price, right? After all, IAG shares have fallen 75% since Covid arrived. Okay, yes, we can often benefit from recovery even in sectors that we don’t like.

The financial position of the IAG has changed, and is difficult to compare. Only the share price is confusing, as many more shares now exist after the issue of new fundraising. But if we take IAG’s market cap and add net debt, we get a thing called its enterprise value. How much will it cost to buy it, pay its creditors and own the business?

Today’s market cap is about £ 7.6bn and net debt (as of June 30, 2021) .4 10.4bn, which is 18bn of enterprise value. In mid-February 2020, just before the Great Depression, we were looking at an approximately 0 12.0 billion plus net debt (১ 0.05 billion) at ১ 1.02 billion. It is a pre-crash enterprise worth £ 18.5bn. There really isn’t much difference.

These are only estimates based on current exchange rates. But it suggests that, despite the large share price, the IAG is now not much better value than before.

In fact, while the medium-term prospects for air travel still seem daunting, I would argue that the IAG crisis is now far more valuable than ever before.

Alan Oscroft has no position on International Consolidated Airlines.

The post IAG Share: Bull vs bear appeared first on The Motley Fool UK.

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Motley Flower UK has no position on any of the shares mentioned. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.

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