One of the best-performing stocks within the FTSE 100 in November was International Consolidated Airlines Group (LSE:IAG). The IAG share price vaulted 24% higher during the month, fuelled by several factors that all worked in favour to push the stock up. Here are the key points worth noting.
Strong earnings report
The main factor last month that helped the stock was the quarterly results. The CEO commented on the “very strong financial performance in Q3”. This included a 15.4% increase in operating profit compared to Q3 2023 and an increase in the operating profit margin to 21.6%.
The revenue growth of 7.9% was flagged up mainly due to to higher passenger revenue. Yet profitability was also helped by the fact that cost pressures eased during the quarter.
Elsewhere, investors also cheered the continued reduction in net debt. As of the end of September, net debt stood at to €6.19bn. This is down heavily from the year-end 2023 figure of €9.25bn.
The positive signs coming from the report helped to boost the share price. If a business is showing demand increasing via higher revenue as well as a good control on costs, investors are going to be impressed.
Other reasons to flag
IAG benefitted from external factors during November, which helped the airline sector in general. Two key ones I noted included the fall in jet fuel prices and the continued move lower in global interest rates.
The oil price has been falling, which helps to lower the cost of jet fuel. In fact, IAG noted this in the quarterly report. It said a 4.2% drop in the fuel unit cost for the period in question. This helps the business as it’s a variable cost that it constantly has to content with.
The airline sector is still heavily indebted from the pandemic. Even though IAG has reduced it, the management team will be thankful that over the past six weeks interest rates in the US, EU and UK have all been cut. This will help to lower the cost of any new variable rate debt taken on and eases cash flow demands.
Still a way to go
These factors all helped to push the stock up last month. As a risk, passenger unit revenue in the Asia Pacific region decreased by 15% in the third quarter. Even though this isn’t a huge part of group revenue, it does show me that the business needs to focus on all regions, not just Europe.
Although it’s still going to take a while for the share price to get back to pre-pandemic levels, I think it can sustainably keep rallying into next year. After all, the price-to–earnings ratio is low at 6.21. It’s below the benchmark figure of 10 that I use as a fair value ratio. Therefore, it’s a stock that I think investors might want to consider for their portfolios.
