IAG rallies on Credit Suisse upgrade

International Consolidated Airlines shares rose on Wednesday as Credit Suisse raised its rating on the stock to ‘outperform’ from ‘neutral’ and lifted its target price to 469p from 439p

Credit Suisse said rising premium fares at the company’s British Airways business suggest “top line resilience in the face of elevated demand doubts”.

The bank also expects new British Airways chief executive Alex Cruz will unveil new self-help initiatives focused on achieving the next level of efficiency at the airline. Credit Suisse sees €1bn of additional opportunity beyond current plans, at 39% of 2016 earnings before interest and tax (EBIT).

While rising pension deficits are a concern for the market, it should not de-rail compelling cash distribution prospects for IAG, Credit Suisse added.

The bank has factored in a £6bn deficit and doubled annual top up requirements to £600m but still expects annual free cash flow yields of 12%-18% over fiscal years 2017-2020.

Reflecting the free cash flow yields, which are expected to be distributed to shareholders, Credit Suisse has upgraded its EBIT forecasts by 2-11% to €2.6bn-€3.0bn for 2017-2020.

Shares rose 2.17% to 395.10p at 1017 BST.