JPMorgan upgrades Ryanair, downgrades IAG

(Sharecast News) - JPMorgan Cazenove upgraded Ryanair but downgraded IAG on Thursday as it took a look at the European airline sector.
The bank lifted Ryanair to 'overweight' from 'neutral' and upped the price target to €21 from €16.40. It said that by year-end March 2025 it expect the airline's passenger numbers to be around 40% higher than in March 2020.

"With its ultra-low costs, we also expect RYA to generate strong EBIT margins and free cash flow as end markets recover," JPM said.

"RYA also has by far the strongest balance sheet in the sector. We see circa 28% upside potential to the ordinary shares. Please note that investment in the ORDs is restricted to EU-citizens, and the RYA ADRs trade at a circa 20% premium to the ORDs due to lower liquidity."

JPM downgraded British Airways and Iberia parent IAG to 'neutral' from 'overweight'. It said IAG should benefit from the re-opening of transatlantic travel and a pick-up in corporate travel through 2022.

It has also undertaken major restructuring in the last two years and JPM expects it to generate an EBIT margin of more than 10% by 2023.

"However, with 2021E net debt of c€13bn, the company may need to issue equity at some point," it said. "We don't think there is an immediate need for this given IAG has c€12bn of liquidity and no major near-term debt refinancing.

"However, the possibility of an equity issuance rises in the event of further share price recovery, in our view, which is likely to cap the upside potential of the shares at this stage."

The bank reiterated its 'overweight' rating on Wizz Air. It said the low penetration of air travel in Eastern Europe means Wizz has unique growth opportunities. In year-end Mar 2025, it expects the airline to carry more than twice as many passengers as in YE Mar 20.

"With its ultra-low costs, we also expect Wizz to achieve a net income margin well above 10% by YE Mar 24.," it said.

"As the Omicron variant spreads into E Europe this could cause near-term share price weakness, but we would use this as an entry point to what we see as by far the best structural growth story in the sector."