Thursday newspaper share tips: IAG, BHP Billiton

IAG and Ryanair continue to be in another league versus their continental peers such Air France- KLM and Lufthansa, the Financial Times’s Lex column said.

Air France-KLM benefited more than many of its peers from cheaper prices for kerosene over the first three months of the year.

However, weak pricing as a result of the terrorist attacks and fewer travelers to and from oil-producing countries have left the company in awkward situation.

Costs are also an issue, as is the French state’s 17% stake in the carrier and its capital structure.

Lufthansa has also suffered debilitating strikes by its crews and pilots.

IAG got its labour issues under control much more quickly and has been rewarded with a richer multiple, trading at about eight times’ forward earnings versus four over at Air France KLM.

Ryanair meanwhile sports costs per available seat kilometre, excluding those for fuel, of just 31% of Lufthansa’s, against comparable ratios of 95% at Air France and 82% at IAG.

If favourable tailwinds from lower fuel prices do not persist or are offset by falling ticket prices the outlook could darken quickly at Air France-KLM.

The reaction in the share prices of BHP and Vale to the announcement of possible further large fines in Brazil leaves a lot of unanswered questions, Lex said.

Federal prosecutors in Brazil said they would seek $44bn (£30.5bn) in damages from BHP and Vale for the bursting of two wastewater dams belonging to their Samarco joint-venture.

That is independent of the $3bn to $6bn settlement already reached with state and federal prosecutors.

Both companies’ share price tanked promptly, erasing about a combined $7.6bn from the market value of their shares.

However, stock in BHP lost $6.1bn of its value while that in Vale only saw a decrease of $1.5bn.

True, there are still many unknowns, such as how the prosecutors arrived at their opening bid, which appears somewhat arbitrary and the degree to which the amount of the previous settlements will be detracted from the final bill.

Yet given that each company owns half of the resulting liability means that markets in London and Brazil have either arrived at hugely different interpretations of the information available or are not truly ‘efficient’, Lex concluded.