Berenberg lowers target price on IAG as coronavirus hits Europe

Analysts at Berenberg lowered their target price on shares of British Airways parent company International Consolidated Airlines Group from 700.0p to 620.0p on Monday, citing concerns surrounding the Wuhan coronavirus outbreak.

Berenberg said the coronavirus outbreak again drove its revenue outlook lower in order to reflect European virus contagion.

"Management noted that Asia Pacific demand appears to be slowly stabilising. IAG has redeployed some capacity elsewhere but it is cautious about making deeper cuts," said Berenberg.

"More immediately, near-term Europe bookings have weakened quickly and unevenly. Italy has destabilised as both corporate and leisure customers cancel trips. However, other markets were holding up at the time of Friday’s Q4 release, including Tenerife, the site of a high-profile coronavirus outbreak."

However, Berenberg said the pressure was partially alleviated by IAG's "significant liquidity buffer" and an enterprise value 10% below its invested capital.

The German bank did note that IAG's recent mid-teens return on invested capital might come under pressure for two or more quarters. However, the analysts still expect IAG to generate "sustainable outer-year returns: above its peers' as it benefits from the reconfiguration of its cabins, mergers and acquisitions and an "opportunistic 737 MAX fleet renewal".

"Our weaker revenue estimates lower our 2020E EBIT by 10%, driving our multiple-based price target to GBp620," said Berenberg, which also retained its 'buy' rating