Deutsche Bank lowers IAG target price in anticipation of higher fuel costs

Analysts at Deutsche Bank reiterated their 'buy' stance for shares of IAG but cut their short-to-medium term profit estimates for the carrier in anticipation of higher fuel costs.

The broker's estimates for IAG's revenues per kilometre across 2022-2024 were all revised higher with a more bullish capacity plan boosting those for 2022.

Their estimate for the company's earnings before interest, taxes, depreciation and amortisation in 2022 was raised by 6% to €3.36bn, putting them 6% ahead of the Bloomberg consensus.

Yet whereas they anticipated that higher revenues would offset higher fuel costs in 2022, that was not the case for 2023 and 2024.

According to the analysts, "marginally" higher revenues per average seat kilometre and cargo revenues would be insufficient to offset higher fuel costs in those outer years.

Hence, they cut their estimates for the company's earnings before interest, taxes, depreciation and amortisation by 7% and 8%, respectively.

On the other hand, they did lower their net debt assumptions for year-end 2021 and 2022 by approximately €800m and €900m.

As well, lower cash generation was expected to absorb those costs in 2023 and 2024, so that the cash position anticipated for the end of 2024 was still seen at €10.9bn.

Even so, their target prices was cut from 260.0p to 230.0p.