EUR 100.00 For Business Accounts Only

IAG: 2Q’20 RESULTS AND CHANGE OF T.P. TO UNDER REVISION (ANÁLISIS BANCO SABADELL)

2Q’20 vs. 2Q’19 Results:
Sales: € 741.0 M (-89.1% vs. -86% BS(e));
Recurring EBIT: € -1.365 Bn (€ 960.0 M in 1H’19 vs. € -1.3 Bn BS(e) and € -1.395 Bn consensus);
Net Profit: € -1.409 Bn (€ 726 M in 2Q’19 vs. € -1.277 Bn BS(e));
1H’20 vs. 1H’19 Results:
Sales: € 5.341 Bn (-55.7% vs. -54% BS(e));
EBIT: € -1.89 Bn (€ 1.095 Bn in 1H’19 vs. € -1.825 Bn BS(e) and € -1.92 Bn consensus);
Net Profit: € -1.965 Bn (€ 806 M in 1H’19 vs. € -1.837 Bn BS(e)).
Results in line with expectations in recurring EBIT. Revenues came in below expectations although this was offset by a better performance of costs. The bottom line of the P&L statement is marked by a € 731 M impairment linked to the “fleet and other assets”, which would explain the Net Profit differences.
As for its prospects, the company stresses that visibility is low and the scenario uncertain. In this regard, it cut its capacity adjustments to -74% in the 3Q’20 (vs. -55% announced in May) and to -46% in 4Q’20 (vs. -30% communicated in May). The company confirmed it does not expect to return to levels similar to 2019 until 2023.
Liquidity came in at € 8.1 Bn at the end of June vs. € 10 Bn in April, with around € 1.9 Bn of cash burn in 2 months.
In any event, the results are eclipsed by the confirmation of the € 2.75 Bn capital increase (~69% of market cap) that the company argues will shore up its solvency in order to overcome even prolonged adverse scenarios. The capital increase must still be approved by the AGM on 8 September, and until then we will not know the terms. In this regard, we highlight that Qatar (25% IAG) has confirmed that it will subscribe to the capital increase and has committed to subscribing all its preemptive rights. Furthermore, the company has confirmed that it has signed an underwriting agreement with several banks.
In summary, the changes in capacity will have a strong impact on 2020 estimates, which we will have to cut. Furthermore, we believe that the rights issue will have a strong dilutive impact although this will depend on the final price that will not be made public until September. In any case, the problem is that the operating visibility continues to be very low. Thus, we change our T.P. to Under Revision from € 3.50/sh. We expect further details at the conference call at 10:00 (CET).