Wizz Air - Flying with zero hedge

 We reiterate our Sell recommendation and cut our TP to 40 GBP/sh, reflecting
the elevated downside risk stemming from the gradual increase in commodity
prices. According to the BoD’s June decision where they approved a ‘no hedge’
policy, we are of the view that Wizz Air is left unhedged against the fluctuation of
jet fuel prices by now, which may lead to a gradual margin squeeze and
competitive disadvantage vs. competitors considering a bunch of promo sales
of low priced tickets for the autumn/winter season.
 We revised down our net profit forecasts. Despite traffic having been recovered
over the peak summer period and Wizz Air topping pre-pandemic seat capacity
levels by August, they started to scale back as students were back to school
and demand for air travel has declined amid rising covid cases in core markets.
Despite many rivals speaking about booming demand for the mid-Autumn
school break period, the pandemic situation of the CEE looks much worse than
that of WE.
 Wizz Air, we think, remained an attractive European LT growth story, unique in
the airline sector, but this has been already priced in the share price, in our view.
Though liquidity position is sufficient at around EUR 1.5bn based on our
calculus, valuation looks extremely stretched. This prompted us to stay on Sell.
 Wizz Air trades at a FY23E P/E of 16.2x (vs. FY1 hist. median of 12.8x) and an
EV/EBITDA of 7.2x (vs. 5.1x), based on BBG consensus, well above its historic
averages.