Despite reducing its full-year EBIT (earnings, before, interest and tax) estimate, Investec has retained its buy recommendation for British Airways owner International Consolidated Airline Group (IAG).

The company is reporting its third quarter figures on November 9th, and the broker expects these to show EBIT of €227m (vs €363m a year earlier), which factors in a predicted 17% year-on-year rise in fuel costs to €1.60bn and losses from the disposal of the BMI airline earlier this year (estimated at €60m), driving a 3.5 percentage point fall in EBIT margin from 8.1% to 4.6%. The load factor is expected to improve by one-fifth of a percentage point at 84.7%.

Investec believes the full year will show an estimated loss of €64m versus previous guidance of break-even, with the negative adjustment resulting from the spot jet fuel price, which it believes is sufficiently above expectations to justify the altered forecast.

However, the broker has maintained its 'buy' recommendation and 190 price target, saying: "We continue to believe that IAG has the management desire and ability to effectively transform the Iberia business (securing a material portion of the targeted €500m FY15E [full year 2015] synergies programme) and drive margin and strategic improvements at BA."

NR

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