UBS, British Airways' joint broker, has issued a downbeat profits forecast for the airline's next financial year, highlighting the challenges facing the airline's embattled chief executive Willie Walsh. Fellow broker Morgan Stanley also downgraded BA's shares today.
Tim Marshall, aviation analyst at UBS, is forecasting a plunge in operating profits from an estimated £875m in the year to March 2008 to just £242m in 2009 - way below his previous estimate of £593m.
The new earnings per share estimate from UBS of just 13.4p to March 2009 - down from 35p - is 180% below current market consensus and reflects a more pessimistic stance on the impact of record oil prices than BA management.
Mr Marshall is assuming an ongoing oil price of $105 per barrel, which has 'further increased our fuel cost by £350m against the assumptions management published at the investor day in March,' Mr Marshall wrote in a note. Whereas BA warned that the fuel bill would increase by £450m in the coming financial year, UBS says it could rise by £800m.
Mr Marshall still retains a buy recommendation on the stock. Pointing to the £1.8bn cash on BA's balance sheet and its strong position at Heathrow, where it has 40% of take-off and landing slots, he notes that BA 'is firmly in the group of strong airlines we believe will benefit over the longer term'.
However, Morgan Stanley cut its rating on the airline stock to 'underweight' from 'equal weight' today, and reduced its price target to 120 pence from 245 pence. The broker said that BA is its least least preferred network carrier, adding that the downgrade follows increased evidence of near-term earnings risk, cost pressure from the T5 move and an aggressive pilots' union.
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