Credit Suisse sees ample scope for cash distributions at IAG

Credit Suisse stuck to its medium-term earnings forecasts for IAG on Monday, telling clients the company offered a "compelling" recipe for free cash flow.

Analysts Neill Glynn, Julia Pennington and Tim Ramskill kept their forecasts for the airline carrier´s earnings before interest and tax intact between 2016 and 2018 intact.

For 2016, they had penciled in EBIT of €3.6bn (£2.82bn), which was equivalent to 54% year-on-year growth and 11% ahead of the consensus estimate.

Free cash flow would benefit from a "limited encroachment" from competitors on BA, which would lead to pricing outperformance, with "benign" capacity growth in London-US/Europe looking "under-appreciated".

The latter was expected to grow by about 3% in 2016, which would ordinarily suggest "robust" pricing, without fuel tailwinds, the broker said.

In their opinion, markets were also ignoring the structural progress made by the carrier.

They pointed out how the company had "impressively" reduced unit costs, acquired Aer Lingus, agreed a Latam joint-business-agreement and grown closer to Qatar Airways.

Combined, those measures were worth €1.7bn in EBIT by 2020, they said.

Lastly, estimated 2016 free cash flow suggested the company had "ample scope" for cash distributions, the Swiss broker said in a research report sent to clients.

Credit Suisse stuck to its 'overweight' recommendation and 852p target price.

As of 1143 GMT shares in IAG were 0.18% higher to 542p.