Isn’t the price of IAG shares a bargain?

The International Integrated Airlines (LSE: IAG) Share prices have been extremely volatile since last year’s stock market crash. In fact, compared to its pre-epidemic value, it dropped 64% to close at 150p. This makes it one of the worst performing UK stocks since the onset of the IAG epidemic. But because of this huge discount, are IAG shares less valuable and should I buy?

Trading updates

Its trading updates were not comfortable to read recently, and recent half-year trading updates were no different. In fact, the airline reported more than 2 2 billion in operating losses. Although it was less than last year’s figure 4bn, it is still much higher and a serious concern for customers.

Recovery also appears to be fairly slow, with passenger capacity in the second quarter of 2019 only 21.9%. It is expected to improve by about 45% in the third quarter, but significant uncertainty remains. Accordingly, it is not clear when the company will be able to make a profit again. This is likely to continue to have a negative impact on IAG share prices.

However, the headline figures look fatal, as well as the positive aspects can be taken away. As of June 30, for example, it had a liquidity of 10.2bn. This is mainly due to the revolving credit facility of $ 1.755bn with bonds issued by the group and the money raised from the rights issue last year. Although this means that net debt has now reached above 12bn, which was below 10bn last year, it is optimistic that the IAG will not face a liquidity crisis any time soon.

For other reasons

Although liquidity is strong, I have concerns that costs will continue to rise. In fact, the IAG has a ০ 90 billion pension deficit and needs to be paid. Although it has postponed these contributions due to Covid, it is set to resume payments of € 41 million per month from October. This will increase costs for the company, at a time when it is struggling to generate any significant revenue. Accordingly, despite the opposite statement of CEO Luis Gallego, there are fears that, e.g. Easy jet, It will issue more shares. This will have a negative impact on IAG’s share price.

On the other hand, there are some signs that international travel is starting to return to the 2019 level. This is because the UK government is in the process of abandoning the PCR test for cheap lateral flow tests for fully vaccinated passengers. Several countries, such as Turkey and Pakistan, have also been dropped from the red list. And there’s good news for a trip to the United States this week. This could help raise the IAG share price.

Is the value of IAG shares worthless?

Although a stock may be cheaper than before, it is not necessarily the equivalent of good quality. I believe this is the case with the IAG. The airline has accumulated huge losses on the epidemic and its future looks uncertain. The price-to-book ratio is around 10, which is much higher than in the past, I also don’t think the price of IAG shares is as cheap as many might think. Although there is always the possibility of the share price rising, I stay away.

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Stuart Blair has no position on any of the shares mentioned. 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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