DAVY VIEW

Although coronavirus fears are weighing on demand, IAG’s business model has demonstrated clear resilience in the past and, in our view, has the balance sheet strength, brand diversification and variable cost base to ensure that it does so again. Post results and referencing financial crisis levels of demand declines, we assume that operating profit drops close to 40% in FY2020 but leave our FY2021 forecasts onwards unchanged as lower fuel, cost discipline and further consolidation place IAG in an even better competitive position. We see dividends being maintained and IAG remains free cashflow positive. If resilience in a downturn is achieved, we believe a re-rating above mid-single-digit is likely.