IAG shares hit a patch of turbulence on Friday after the airline operator released full year results for 2022 which confirmed robust revenue recovery from the pandemic.

Revenue for 2022 was €23bn, up from €8bn in 2021, as pent up demand from the pandemic was unleashed on the travel sector.

After recording a near €3bn operating loss in 2021, the British Airways owner swung to a €1.2bn operating profit.

“British Airways owner, IAG has swung to an operating profit of €1.2bn, compared to billions in losses last year. The impressive regaining of altitude comes as a direct result of Covid restrictions easing and a return to more normal travel,” said

“As a long-haul specialist, IAG has been one of the last names in the sector to gain momentum following the pandemic. Of course, aviation has flown straight into another hurdle in the form of a cost-of-living crisis. So far it seems pent up demand for travel is keeping things propped up, but there is a limit to how long this can continue. It’s heartening to see IAG’s capacity ramping back up to pre-pandemic levels – getting to this point didn’t come without its well-publicised challenges.”

Despite the return to profit, IAG shares were 4% lower at the time of writing on Friday. Analysts at AJ Bell highlighted IAG’s €10.3bn net debt as a potential source of strive for investors.

“As a legacy of Covid, debt is highly elevated. This could make the market uncomfortable, particularly if there is any indication it is preventing IAG from making necessary investments in its business,” said Russ Mould, investment director at AJ Bell.

IAG also announced the €400m acquisition of the remaining 80% of Air Europa on Friday. Although €100m of the consideration will be paid in shares, investors may be a little perturbed IAG are spending cash on acquisitions, rather than paying down debt.

Avation (LON:AVAP) together with its subsidiaries, leases commercial passenger aircraft to airlines worldwide. 

Ahead of announcing its interim results next Friday, 3^rd March, the group has given the market guidance by way of an Update pointing to a full year outturn that will be ahead of expectations.

The Singapore headquartered company’s fleet includes narrow-body jets, twin-aisle jets, and ATR 72 twin-engine turboprop aircraft. 

Set up in 2006, the company now owns and manages a fleet of 36 commercial passenger aircraft. It is also involved in the financing business. 

The Pre-Results Trading Update

Chairman Jeff Chatfield has today stated that due to a combination of factors, such as lower than anticipated aircraft transition costs, lower administration and legal costs, improvements in finance income, recognition of gain on an investment in a listed airline and other variances, Avation expects its financial performance for the full year ending 30 June 2023 to be significantly ahead of market expectations.

Analyst Opinion – ‘fair value’ of 185p a share

John Cummins at WH Ireland was encouraged by the Update statement, especially after the last couple of challenging years for the group.

He notes that market dynamics are starting to provide and increasingly positive backdrop for aircraft lessors such as Avation.

Ahead of this announcement Cummins was anticipating that the year to end June 2023 would see revenues of $93.0m and an adjusted pre-tax loss of $3.4m.

For the coming year his estimates were for $100.9m revenues and an adjusted pre-tax profit of $1.7m.

Conclusion – facing bluer skies

The group’s shares have endured a very bumpy flight over the last few years, they reached 330p in January 2020. The Covid Pandemic saw them drop to 130p within the following two months.

Since then, they have been down to 66p, in May last year, before starting to climb again to rest around the 115p level.

But after the Update the shares have risen 10p to 125p and look to be facing bluer skies.

Rolls Royce was the standout performer on Thursday as the engine maker’s shares jumped over 20% on better than expected 2022 results and a positive outlook.

However, the FTSE 100 fell 0.4% and underperformed European indices as mining companies dragged the index lower following Anglo American’s earnings update.

The German DAX was 0.33% higher and French CAC gained 0.2% at the time of writing.

Declines in Anglo American, Antofagasta, Endeavour Mining and Rio Tinto weighed on the index and wiped out the impact of robust earnings from both WPP and Rolls Royce.

“The FTSE 100 slipped as a positive reaction to results from Rolls-Royce and WPP was not enough to offset weakness from various mining, pharmaceutical and consumer goods stocks,” said Russ Mould, investment director at AJ Bell

“BAE Systems dipped nearly 3% on its full year results. Despite predicting higher military spend in 2023 which should improve its earnings, the negative share price reaction is most likely to down to investors taking profit after a strong run for the shares since Russia invaded Ukraine a year ago and how that led investors to seek exposure to the defence sector.”

Mondi was the FTSE 100 top faller, down 5%, after warning of marcoeconomic uncertainties and said they saw “an environment of softer demand and pricing, with destocking expected to continue through the first quarter.”

US Interest Rates

The market’s perception of interest rate trajectories has dominated equity trade so far this year and last night’s Federal Reserve minutes threw cold water on hopes of a Fed pivot in the short term.

“There were few crumbs of comfort from the closely watched minutes of the US Federal Open Markets Committee, with the determination of policymakers to stay tough on inflation clear,” Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“The data so far might signal that the hot prices are beginning to be tamed, but it is not yet enough reassurance that the spiral is going to come down fast enough to target without more aggressive tightening, albeit at a slower place. The resilience of the US economy is right now considered to be disadvantage, with rate hikes so far proving to be just glancing blows in certain sectors.” 

The US economy smashed economist estimates and added 517,000 jobs in January, a significant show of strength that doesn’t warrant easier monetary policy.

The S&P 500 finished last night’s session lower but futures were pointing to a higher open.

The final two months of its 2022 year saw TT Electronics (LON:TRT) enjoy continued revenue growth, strong enough for it to beat market expectations.

The global provider of engineered electronics for performance critical applications has reported that its 20% organic growth for the year reflects its successful positioning in structural growth markets and new project and customer wins, with the outperformance driven by its Global Manufacturing Solutions business.

The company operates in industries where there are structural growth drivers, working with market-leading customers primarily in the industrial, medical, aerospace and defence sectors.

Products designed and manufactured include sensors, power management devices and connectivity solutions.

Global Operations

The group, which has design and manufacturing facilities in the UK, US, Sweden and Asia, operates through three main divisions.

The Power and Connectivity division designs and manufactures power application products and connectivity devices which enable the capture and wireless transfer of data.

The Global Manufacturing Solutions division provides manufacturing services and engineering solutions, it manufactures complex integrated product assemblies and provides engineering services including designing testing solutions and value-engineering.

The Sensors and Specialist Components division works with customers to develop standard and customised solutions including sensors and power management devices.

Consensus Opinion – £39.4m top expectation

Expectations for the trading year to end December 2022 are for adjusted pre-tax profits in the range of £36.5m to £39.4m.

Conclusion

When the results are published on Wednesday 8^th March there are likely to be upgrading in current year broker estimates.