With more than a 15% pull back, IAG now looks too cheap on 8.5x next years earnings. With solid traffic stats yesterday we view this potentially MERS related weakness as a good entry point.
Since EZJ numbers the market has been concerned with the increased competition/price cuts on the back of the lower oil price, rather than increasing margins. This is overdone with May traffic data so far showing a significant uplift to a distorted Easter, which should provide some comfort over q3.
This should only get better thanks to improved sentiment/increase in disposable income post the conservative victory. PMIs in the mid 50s in Spain suggesting decent growth going forward and this will benefit Iberia.
We also finally have approval from the Irish govt for the accretive Aer Lingus deal. The oil price seems to have topped out ahead of opec, and with USD65 the level at which projects are turned back on.
Airlines are always a risky trade and these MERS headlines are unhelpful, but I think we have learnt our lesson over Ebola which was a storm in a tea cup, and at 8x earnings you are compensated for that. BUY.