Wizz Air - Downgraded to Neutral on growing concerns

• We downgrade Wizz Air to Neutral from Accumulate as shares approached our target price of 33 GBP/sh today morning. We leave our estimates unchanged.
• Shares in Wizz Air have risen c.30% since our March note when we double-upgraded the stock from Sell to Buy. However, the global picture hasn’t changed a lot. Geopolitical uncertainties are continuously putting pressure on the global economy. The Russia-Ukraine war has yet to be resolved, while the risk of an escalation has increased significantly in the last couple of days. If the war contains to the territory of the EU, Wizz Air will be negatively impacted as its core markets are neighboring with Ukraine. Military action in Poland or Romania may force ATCs to shut down their air space, which ultimately result in Wizz Air should cut dozens of daily flights from its schedule.
• Stronger headwind is blowing. Oil prices rebounded from its recent lows of c.100 USD/bbl. Wizz Air also suffers from the strengthening USD vs. EUR as well as CEE currencies, which makes difficult to pass higher costs onto customers.
• Wizz Air trades at a FY2 P/E of 11.5x (vs. 5Y FY2 hist. median of 10.7x) and an EV/EBITDA of 5.1x (vs. 6.1x), based on BBG consensus estimates. In peer comparison, Wizz trades at an 8% premium vs. Ryanair’s FY2 P/E of 10.6x. (EV/EBITDA multiples are not comparable, in our view, due the different financing structure.)  This is not reasonable given the short-term competitive edge of the Irish carrier, stemming from the different approach in hedge policy. As a reminder, Ryanair hedged c. 80% of its summer exposure at below 650 USD/mT, while Wizz hedged 36% with an avg. ceiling price of 1,130 USD/mT