Wizz Air - Profit Guidance Confirmed, Nothing Else Matters

WIZZ AIR- Earnings Revision

Recommendation:  Accumulate (prev. BUY)

Target price (12M): GBP 36.0 (prev. GBP 37.0)

• We rerate Wizz Air to Accumulate from Buy and reduce our 12M TP from GBp 3700 to GBp 3600, leaving a 17% upside potential, reflecting the appreciation of the GBP against EUR and lower than previously expected net profit for FY19 (new est.: EUR 286 mn vs. prev. est.: EUR 301mn).
• After lacklustre Q3 numbers, Management’s promises are very likely to come true, according to the latest comment on Q4 performance. Wizz Air confirmed that they expect a net profit for fiscal 2019 in the upper half of its guidance range of between EUR 270-300 million. More importantly, outlook is bright as the carrier published a preliminary guidance for Q1 in which it emphasize the further growth potential of the CEE market.
• Wizz Air delivered a PAX growth of 16.7% YoY on a capacity growth of 14.9% YoY, resulting a load factor of 92.8% (+1.4ppts), well above our expectation of 92.4% and the Management’s guidance of 92.3%. In Q4, the carrier delivered 7.7 million passengers, up by merely 10.8% YoY, which was well below usual growth rate of c20%, but it is considered as not a dramatic, but a deliberate change in the operation.
• The main point of our view is that, headwinds for rivals are rather considered as a tailwind for Wizz, thus it doesn’t really matter if other players (e.g. Easyjet or Lufthansa) are cautious on weak demand. Having that said, CEE markets are healthier and GDP growth is still intact in our beloved region. Therefore, we need to differentiate between the European Airlines, and to be honest, cost-leader Wizz Air is very well-positioned as opposed to other key players due to its prominent CEE exposure.

 

Q4 Preview & Outlook

• EBITDAR is expected to amount to EUR 101.3 mn (+62.3% YoY) in fiscal Q4 (EBITDAR margin @ 22.7% vs. 16.6% a year ago) as a result of strong RASK performance and cost discipline. According to our estimate, EBIT will reach a loss of EUR 7.7mn vs. a loss of EUR 27.3mn in 18Q4. In terms of the bottom line, we forecast a net loss of 7.6mn in Q4.
• According to Wizz Air’s comment on outlook, demand remained robust across the company’s market. It was remarked by the great operational performance as Wizz Air improved its load factor by 2.6ppts YoY to 94.1% in March. Management guided a RASK forecast of +4% YoY and an ASK growth of +18% YoY for fiscal 2020 Q1, which is underpinned by the following chart. Wizz Air still outpace the rivals and is poised to add +18.2% seats to the market on a yearly basis in calendar Q2 and offer 10.9mn tickets to potential passengers. In contrast, largest rivals are just able to grow high single digit. Meanwhile, Lufthansa, who is the most dominant player of the Austrian market via its subsidiaries, and other European legacy airlines suffer.

 

Source: OAG, anna.aero

 

Q4 PREVIEW

Source: Concorde’s estimate  

 

 

Gabor Bukta
Equity analyst

CONCORDE SECURITIES LTD.

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Rating	Trigger
Buy	Total return is expected to exceed 20% in the next 12 months
Accumulate	Total return is expected to be in the range of 10-20%
Neutral	Total return is expected to be in the range of 10%-(-10%)
Reduce	Total return is expected to be in the range of -10-(-20%)
Sell	Total return is expected to be lower than -20%
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