Berenberg initiates coverage of EasyJet, Ryanair and IAG at 'buy'

Berenberg initiated coverage of EasyJet, Ryanair and International Consolidated Airlines Group as it took a look at the airlines sector.

It started Ryanair at ‘buy’ with a €16.00 price target, noting it’s the lowest-cost producer and clear structural winner in the European airline space.

“It has the lowest cost base, highest margins, asset utilisation and returns. It enjoys a 10%+ margin advantage over rivals. This means that it can better withstand demand or capacity shocks, leaving it to take market share as others withdraw.”

The bank started EasyJet at ‘buy’ with a 1,250p price target, saying that while the stock has been hit by disruption and terror, Brexit fears and currency weakness and competitive pressures are likely to persist through next year, consensus expectations have rebased.

“We now see limited further downside to numbers, which makes us cautiously optimistic. We believe EasyJet has a fundamentally strong business model and that it will ultimately be able to navigate any bilateral issues arising as a result of Brexit.”

Berenberg initiated coverage of British Airways and Iberia parent International Consolidated Airlines Group at ‘buy’ with a 595p price target saying it is the best placed name in its network airline coverage to deliver further, sustainable cost cuts.

The bank reckons the company’s management is a good capital allocator, pulling back on growth plans and allocating capital to the highest-returning parts of the group.

“IAG is committed to returning excess cash to shareholders and its dividend yield of 4.6% is attractive in itself, but we forecast higher free cash flow yields of 9-11%. As IAG has no need to de-lever we see the potential for higher payouts or share buybacks.”