IAG Share Forecast October 2021 – Time to Buy IAG?

Shares of International Consolidated Airlines Group (LSE: IAG) have struggled in recent months, as Covid-19 infection rates across parts of the world remain stubbornly high. As new variants grow, the fear of fresh restrictions being imposed is not a far cry. However, the share price, which is at 161p is 73% more expensive than what it was last year.

IAG – Technical Analysis

According to the financial statement released by IAG, the market cap of the company is at £7.935 billion with total assets worth $28.725 billion. Revenue for 2020 was at £6.99 billion with a profit margin of -87.99% compared to £22.38 billion in 2019.

Oscillators such as Relative Strength Index (14)(44.11), Stochastic %K (14, 3, 3)(22.79),  Commodity Channel Index (20)(−71.62),  Average Directional Index (14)(22.70), and Awesome Oscillator(−9.82 ) are all neutral. Moving averages such as Exponential Moving Average (10)(163.30), Simple Moving Average (10)(163.55), Exponential Moving Average (20)(166.88), Simple Moving Average (20)(172.06) and Exponential Moving Average (30) (167.83) are indicating a sell action.

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Recent Developments

IAG was born out of a merger between British Airways and Iberia in January 2011. With over 55 million passengers flying to 200 destinations, it is one of the largest airline groups in the world and also a major conveyor of air cargo. The company is based out of the United Kingdom and is the sole tenant of Heathrow’s Terminal 5.

IAG has been previously touted as a great UK recovery share. However, the tightening of travel restrictions due to swelling Covid-19 infection rates has suggested that the recovery could be delayed. Given the fragile state of the company’s balance sheet, this is particularly worrying. Net debt for the company was at €12.1 billion as of June and it wouldn’t be surprising for the company to ask investors for cash in the future. The share price has decreased in recent weeks due to Heathrow airport’s decision to cap passenger charges by 53%. This can damage the company at a time when consumer confidence is getting affected by soaring inflation.

IAG has been further affected by changes to Air Passenger Duty in this week’s Budget. The UK government has decided to hike duty on long-haul flights exceeding 5,500 miles while decreasing tax on domestic flights. This could increase the price of an economy ticket by more than £91. Soaring fuel prices have also impacted IAG’s recovery as it reached seven-year peaks of around $84.40 per barrel due to supply issues.

Should You Buy IAG Shares?

Investors can look at the positive aspects of IAG, such as its British Airways brand which commands terrific customer loyalty and have a commanding role in the lucrative transatlantic sector. It has also taken several steps to increase its foothold in Europe by targeting the booming low-cost European travel segment.

However, there exists a multitude of problems that IAG investors need to take a look at. They pose a threat to the company’s thin profit margins over the long term. IAG shares aren’t cheap right now compared to pre-pandemic levels. The valuation issues are expected to have a longer-term effect.  Given the travel giants’ massive debts, these can also be particularly dangerous in the short term.

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