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Business, Finance, Occupation & Industry

Should You Buy International Consolidated Airlines Today?

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By Royston Wild, The Motley Fool

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LONDON — I am backing International Consolidated Airlines Group to take off in coming years as its transformation plan in Spain begins to bear fruit. The company was formed after the merger of British Airways and Iberia in January 2011 and is one of the world’s largest airline-operators, carrying more than 60 million passengers per year to more than 200 destinations across the globe.

Spanish restructuring plan starts to take hold
IAG swung to an operating loss of 23 million euros in 2012 before Iberia’s restructuring and 68 million euros post-restructuring. This compares with an operating profit of 485 million euros in the previous year.

Indeed, performance in the Spanish division has placed a lead weight on the group’s performance over the past year. Although British Airways remains resilient and generated an operating profit of 347 million euros last year before exceptionals, Iberia posted a huge 351 million euro operating loss.

However, in January Iberia‘s unions agreed to enter discussions over the firm’s comprehensive restructuring plan, and in recent weeks a deal was struck to cut 3,100 jobs at the airline. IAG‘s board has retained a strict tone with the restructuring of the Spanish arm, and I expect an improvement from Iberia to kick off in the near future and drive the group back to growth. Further, IAG is also extending its presence in the lucrative low-cost carrier space by acquiring Spanish airline Vueling, in which it already holds more than 45%. The budget airline’s board approved IAG‘s latest 9.25 euro per-share bid yesterday, and the deal has already been approved by Spain‘s market regulator.

In other positive news, the airline inked a $4 billion deal with Boeing earlier this month to convert options into the delivery of 18 of the plane builder’s 787 Dreamliner airplanes. The new hardware will be used to replace some of British Airways‘ 747 aircraft between 2017 and 2021, and IAG said it may place firm orders for its Iberia arm once the division’s restructuring plan and cost base reductions have materialized.

Earnings growth expected to snap back sharply
Investec expects earnings per share to come in at 12.2 pence in 2013, swinging back from losses per share of 13.1 pence in the previous 12-month period. The broker then expects EPS to explode 124% in 2014 to 27.3 pence.

IAG currently trades on a P/E rating of 20.1 for 2013, but that’s predicted to collapse to nine in the following year. I believe these readings provide excellent value prospects in comparison with a forward earnings multiple of 17.1 for the wider travel and leisure sector.

The expert view to growth elsewhere
If you already hold shares in International Consolidated Airlines Group and are looking to significantly boost your investment returns elsewhere, check out this special Fool report, which outlines the steps you might wish to take if you are hoping to become seriously rich from other shares. Our “Ten Steps To

From: http://www.dailyfinance.com/2013/04/11/should-you-buy-international-consolidated-airlines/

Business, Finance, Occupation & Industry

The Stocks That Margaret Thatcher Gave Us

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By Tony Reading, The Motley Fool

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LONDON — Baroness Thatcher will be remembered for many reforms, but one of enduring legacy for investors is that she gave us the stock market we know today.

Privatization became a key plank of economic policy, and nine of the firms in the FTSE 100 are the direct descendants of state-owned companies privatized during her time as prime minister.

Thirty five years ago, the precursors to BP , BAE , International Consolidated Airlines , BT , Rolls-Royce , BG, Centrica, Severn Trent and United Utilities were all state-owned enterprises. Today. they are successful blue-chip firms with a combined market capitalization of over £200 billion.

1. BP
Privatization had started in 1977 when the Labor government of James Callaghan sold a 32% stake as part of the conditions of the country’s IMF bailout. Under Margaret Thatcher‘s watch the remaining stake was sold, with two big sales in 1979 and 1987. The 1987 offering coincided with a stock market crash and the stock was left with underwriters, costing them billions.

BP subsequently grew to become the FTSE‘s biggest dividend payer, but the U.S. Deepwater Horizon disaster put paid to that. With a new alliance with Russia‘s state-owned oil company, it’s set to resume its former upwards trajectory.

2. BAE
British Aerospace (BAE) was sold off in two chunks in 1981 and 1985. BAE struggled in the 1990s and merged in 1999 with Marconi to become BAE Systems. BAE sold its 20% of Airbus to EADS in 2006 to concentrate on defense, only for new management to seek a merger with EADs in 2012 to regain exposure to commercial aerospace.

Poor strategic management may have been a counterweight to superb engineering, but a 5% yield in a — literally — defensive sector makes the company an attractive investment.

3. BT
Half of British Telecom was privatized under Margaret Thatcher in 1984, with the remaining shares sold off in 1991 and 1993. It was the first of the blockbuster utility privatizations, with the company at the time enjoying a virtual monopoly (a consortium, Mercury Communications, provided nominal competition).

Shareholders have had a roller-coaster time, with the changing structure of the industry and the technology bubble. More recently, a push into broadband has given the company a new lease of life.

4. IAG
British Airways was fully privatized in 1987, in an offer that was 11-times oversubscribed. It grew in scale with the acquisition of British Caledonian, and then in profit under CEO Willie Walsh, who did some union-wrestling of his own.

IAG was formed from the merger of British Airways and Iberia in 2010, to enjoy greater global scale. However, management is now hampered by Spanish union intransigence.

5. Rolls-Royce
Rolls-Royce is an oddity in the privatization program. It had been nationalized by Lady Thatcher‘s predecessor Edward Heath in 1971 to save it from administration after cost over-runs on the RB211 engine. The Thatcher government returned it to the private sector in 1987, since when it has prospered to be one of three global manufacturers of big engines.

In a companion piece, I’ll cover the four utility stocks.

Margaret Thatcher believed in individuals taking

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Is International Consolidated Airlines the Ultimate Retirement Share?

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By Roland Head, The Motley Fool

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LONDON — The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There’s no sign of things improving anytime soon, either, as the Eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I’m tracking down the U.K. large caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk, income-generating retirement fund (you can see the companies I’ve covered so far on this page).

Today, I’m going to take a look at International Consolidated Airlines Group , the strangely named company that operates British Airways and Spain‘s troubled Iberia airline. IAG released its final results this week, showing that British Airways‘ profits were cancelled out by Iberia’s losses. So can IAG‘s management turn Iberia around to deliver sustainable, long-term growth?

International Consolidated Airlines vs. FTSE 100
Let’s start with a look at how IAG has performed against the FTSE 100 since it was formed in Jan. 2011 through the merger of British Airways, Iberia, and, more recently, bmi:

Total Returns

2011

2012

2013 YTD

3-Yr. Trailing Avg.

International Consolidated Airlines

-45.9%

25.4%

29.4%

4.2%

FTSE 100

-2.2%

10%

8.4%

9.7%

Source: Morningstar

(Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.)

IAG‘s stock market performance since its creation has been fairly unimpressive, and yesterday the group reported a pre-tax loss of 997 million euros for 2012. Another loss seems likely in 2013, as the group faces the exceptional costs and likely disruption from strike action involved in restructuring loss-making Iberia. Despite this, IAG‘s shares have performed strongly so far this year, as analysts have upgraded their expectations for IAG, thanks to the success it has had in integrating bmi into a restructured and profitable British Airways.

What’s the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let’s see how IAG shapes up:

Item

Value

Year founded

2011

Market cap

4.4 billion pounds

Net debt

1.9 billion euros

Dividend Yield

0%

3-Year Average Financials

Operating margin

2.5%

Interest cover

2.0x

EPS growth

-132%

Dividend growth

n/a

Dividend cover

n/a

Here’s how I’ve scored IAG on each of these criteria:

Criteria

Comment

Score

Longevity

A difficult marriage that may yet fail.

1/5

Performance vs. FTSE

Below average, but too early to really judge.

2/5

Financial strength

Despite this year’s losses, it’s fairly robust.

3/5

EPS growth

Not much growth yet.

1/5

Dividend growth

Doesn’t yet pay a dividend.

0/5

Total: 7/25

IAG currently has the dubious distinction of being one of just three companies in the FTSE 100 that don’t pay a dividend — the others being Royal Bank of Scotland and Lloyds. That’s not a great start for …read more
Source: FULL ARTICLE at DailyFinance