Broker tips: Experian, IAG

Jefferies has upgraded its rating on Experian from 'hold' to 'buy' and hiked its target price by nearly 40%, saying that growth is at an inflection point for the data analytics and credit ratings agency.

"We present new analysis on Brazilian credit and global web traffic/app usage that gives us confidence on inflecting growth in Experian's Latam division and B2C activities. We believe both dynamics are underappreciated by consensus," Jefferies said in a research report on Wednesday.

Meanwhile, credit volume projections in the US are pointing to a stabilisation through most of 2024, with "early signs of a recovery" in the second half of 2025.

The broker said some $2.8bn to $4.0bn could be spent on M&A over the next 12 months – "either data assets and/or bolt-on capabilities in areas of strategic focus".

Regarding the stock's valuation, Jefferies said Experian's shares are trading at the bottom of its recent range, and was currently trading at a 15% discount to similar peers on a price-to-earnings basis.

"We believe that as the market focus moves past volume uncertainties, the narrative will shift toward recognising the strong structural growth and product innovation embedded in Experian," the broker said.

BA and Iberia owner IAG flew higher on Wednesday as JPMorgan Cazenove double upgraded the shares to 'overweight' from 'underweight' and lifted the price target to €2.50 from €1.45.

JPM said that previously, it had concerns that high capacity growth in 2024 would lead to pricing and earnings pressure.

"Whilst the shares have underperformed since our UW call, in our view, it’s clear from the 2023 results that earnings are unlikely to decline this year," it said. "We now see an opportunity for IAG to outperform consensus expectations despite the start of a re-investment cycle (higher opex/capex), which should then benefit longer-term earnings."

The bank said it now models flat unit revenues for 2024 and sits around 10% above Bloomberg consensus, with upside to estimates from strong leisure demand driving higher pricing. It also noted that IAG is beginning a large re-investment cycle in 2024 which has the potential to drive sustainably higher EBIT margins from 2025 onwards.

Finally, it said that rapid de-leveraging has removed the pandemic balance sheet overhang and it forecasts "decent" free cash flow generation for 2024 despite high capex investment. The bank lifted its 2024/25/26 EBIT estimates by 30%/33%/33% respectively, mostly due to higher revenues.

Reporting by Iain Gilbert at Sharecast.com