Picture supply: Getty Pictures
As I kind, British Airways proprietor Worldwide Consolidated Airways (LSE: IAG) seems to be set to be one of many best-performing FTSE 100 shares in 2024.
What’s gone so proper? And simply how a lot cash would an investor have made in the event that they’d purchased £10,000 of IAG shares as quickly as markets opened in January?
IAG soars above opponents
Let’s handle that first query. Over the yr, IAG’s benefitted from decrease gasoline prices and better demand, with the latter permitting it to extend ticket costs. An deserted takeover of Spain’s Air Europa (because of regulatory hurdles) was additionally greeted with sighs of reduction from traders.
However issues actually stepped up a gear when Q3 numbers had been launched in November. Again then, the corporate introduced a 15.4% rise in working revenue, thanks partly to extra individuals flying between London and the US.
Not solely did this beat market expectations, it additionally smashed the efficiency of rivals equivalent to Air France-KLM and Lufthansa over the summer time. The previous was impacted by vacationers desirous to keep away from the Paris Olympics. In the meantime, Lufthansa misplaced floor in Asia to Chinese language opponents. Each of IAG’s opponents additionally confronted larger prices.
Throw in a €350m share buyback and up to date share worth efficiency — up 94% year-to-date — makes fairly a little bit of sense.
Enormous positive aspects
Returning to the second query, a £10,000 funding firstly of 2025 would now be value £19,400. Really, it’s very barely greater than that if we take September’s interim dividend — IAG’s first distribution in slightly below 4 years — into consideration. When it comes to efficiency, this places the airline operator on par with top-tier superstock Rolls-Royce (+96%).
In fact, it goes with out saying that IAG’s positive aspects completely smash the market return too. Over the identical interval, the FTSE 100 index has climbed rather less than 7%.
This serves as but extra proof of simply how profitable inventory selecting may be.
Can this proceed?
The query is whether or not IAG shares will fly even larger. Primarily based on valuation alone, I’m tempted to say they’ll. A ahead price-to-earnings (P/E) ratio of simply 6 nonetheless seems to be very cheap.
CEO Luis Gallego appears bullish too. He mentioned in November that demand throughout the corporate’s airways “stays sturdy” and that IAG anticipated “a great remaining quarter financially“. Because it stands, analysts are predicting 2024 working revenue to hit €3.7bn.
Full-year numbers for 2024 are because of land on 26 February.
Purchaser beware
However an funding in IAG’s definitely not devoid of danger. It goes with out saying that the corporate has no say on the value of gasoline. Adversarial climate, larger wages, geopolitical tensions and armed conflicts can even impression operations, as can delays within the supply of elements.
In October for instance, British Airways was compelled to cancel a whole lot of long-haul flights because of plane shortages. Quite mockingly, this was traced again to not sufficient engines being provided by… Rolls Royce.
Regardless of strengthening lately, IAG’s steadiness sheet nonetheless seems to be considerably weaker than it did earlier than the pandemic. That’s not ultimate if inflation retains bouncing.
These considerations apart, I’m inclined to suppose current momentum will proceed, particularly if funding within the “structurally rising” Latin America market pays off.
Consequently, any traders with money on the sidelines might wish to contemplate getting concerned.
