Broker tips: IAG, Intertek

The broker said a more favourable fuel cost outlook and resilient demand drive material upgrades to short-term estimates.

"Supply chain bottlenecks constrain the industry’s ability to add excess capacity, underpinning both strong unit revenue trends and our optimism on the outlook," it said. "A stronger earnings outlook translates into faster organic leverage reduction. We consider IAG’s rating to not reflect its undiminished strategic positioning."

Liberum said that on its revised forecasts, which are "admittedly above consensus", IAG trades on a 2023E price-to-earnings of 6.1x (fully diluted) and EV/EBITDAR of 3.7x, falling to a 2024E P/E of 3.8x (fully diluted) and EV/EBITDAR of 2.9x.

"We consider this valuation to be consistent with late cycle multiples, rather than the relatively early-stage recovery from the pandemic that IAG is in," it said.

Elsewhere, RBC Capital Markets upgraded its stance on inspection, product testing and certification company Intertek to ‘sector perform’ from ‘underperform’ as it said the stock was close to fair value.

The bank said it sees last week’s CME as a welcome fundamental reset in Intertek’s engagement with the capital markets, tangibly lowering the risk profile of the equity story.

"Though further expensive M&A remain a risk to return on invested capital, we think cautious FY23 guidance and soft comps limit the risk of disappointment and believe the historically resilient TIC sub-sector is likely to prove something of a safe haven as the lagged effect of monetary tightening impacts the wider economy," it said.

RBC lifted the price target to 3,900p from 3,700p.