Image source: International Airlines Group
Group of consolidated international airlines (LSE:IAG) shares were among the best performers FTSE 100 Index Shares in August. IAG's share price rose by almost 11% during this period, with some big news helping to push the stock higher. Here's the lowdown on what happened and what I think will happen next.
Solid results
The main driver of the share price last month was the publication of its first-half results, which detailed new developments by the airline operator, including the resumption of dividend payments.
It posted an operating profit of €1.3 billion, and while that was only €49 million above the same figure last year, it is important to remember that the first half of 2023 was a record result as the pandemic blues were completely gone. So being able to beat that lofty benchmark is impressive.
It also managed to reduce net debt from €9.2 billion last year to €6.4 billion today. This is a big improvement and means that debt is at a much more manageable level going forward. The cost of servicing the debt will be lower, which will help free up cash for other business purposes.
Finally, bond investors were pleased by the resumption of the payment of a dividend of three cents per share. Admittedly, the dividend yield of 1.38% is not crazy, but it demonstrates the management team's intention to start distributing cash again.
Looking to the future
September brings with it a new month, with events that may influence share prices. For example, I am keeping an eye on the Bank of England meeting (September 19), where there is a chance that interest rates will fall again. Even if they don't, I expect the committee to comment that more cuts are coming. This should boost shares further, as it will make it cheaper to service debt.
As for the stock itself, it is now at 181p. The 52-week highs are a little higher at 187p. If it were to break above that figure, the stock would be at its highest level since the summer of 2021.
However, there are risks going forward. I was disappointed to see that the company has given up on buying Air Europa in its entirety. It is not just about the €50 million termination fee that it will have to pay. Rather, I do not see how it could have gone from wanting to buy to not wanting to buy in a relatively short space of time. The management team must be clear about what it wants to do in order to avoid failing in future occasions.
Continuous momentum
In the past, with all the hangover from the pandemic, I was skeptical about IAG. However, August's performance has given me a lot of food for thought. I am now seriously considering buying shares in the company based on the momentum generated by the recent financial results.