Wizz Air - Profit Tops Expectations, Guidance Mid-Point Raised By 3%

WIZZ AIR- Instant Earnings Comment

Recommendation:  Neutral

Target price (12M): GBP 43.0 (unch.)

 

• Wizz Air published its Q3/20 report today, BMO. The carrier reached a net profit of EUR 21mn in Q3/20, our estimate of EUR 11mn (+86%) and consensus estimate of EUR 8mn (170%). Profit guidance was raised by 3% to the range of between EUR350-355mn (previously EUR 335-350mn). Despite having been upgraded, it is still cautious, in our view, but we note that Wizz Air expands its operations by more than 25% in the ongoing quarter, which will likely lead to significant losses at the end of fiscal 2020. The Company expects ex-fuel CASK declines by 1% in FY20 driven by relentless cost discipline.
• Wizz Air reported stunning growth rates for Q3/20: (1) Total seat capacity +21.8% YoY; (2) PAX +23.2% YoY; (3) LF +1.1ppts YoY @ 92.5%. The faster pace of growth was attributable to the very strong Christmas period.
• Net revenues came in at EUR 637mn (+25% YoY), compared to our estimate of EUR 647mn (-1.5%) as the traffic had to be stimulated by low fares as a result of the high growth rates. Ticket revenues totalled EUR 336mn (+16% YoY), 2.3% below our estimate. Ancillary revs amounted to EUR 301mn (+37% YoY), 0.6% below our estimate.
• Operating results were better than expected, totalling EUR 35mn in Q3/20 in EBIT terms vs. our estimate of EUR 29mn. Staff cost growth accelerated at a much slower pace than we anticipated, which has predominantly driven the upbeat.
• Fleet: The carrier reported faster growth rate for FY21 compared to the previous guidance, whereas it is expected to slow down in FY22. A quarter earlier, Wizz Air reported the opposite.
• Guidance: The Management has upgraded its profit guidance for the 2020 Financial Year. They raised the profit guidance to the range of between EUR 350-355 million. Furthermore, they expect an ex-fuel CASK decrease of 1% for FY20.
• According to CEO Mr. Varadi, Wizz Air will benefit from improving trading conditions due to better yield environment in light of rivals’ lower capacity additions which continues over the next couple of quarters.
• Recommendation: We are of the view that Wizz Air is fundamentally strong and operates amid more favourable conditions in the CEE region than rivals in Western Europe.

 

latest guidance update

	2020 Financial Year	Previously
Capacity growth	20%
Average stage length	Moderate increase
Load Factor	+1 ppt
Fuel CASK	7%
Ex-fuel CASK	-1%	Slightly negative
CASK	+2%
RASK	Slightly positive
Net profit	€ 350-355 million	€ 335-350 million

Source: Wizz Air

• call takeaways:
  • Wizz Air is the only airline in Vienna, which can make money. Despite the fact that the market is matured in Austria, Wizz Air already has a market share of 9-10%.
  • Wizz Air expects better yield environment due to soften supply-demand conditions.
  • CEO highlighted that business is capable of delivering two-digit (15%) growth.
  • In February and March, Wizz Air will grow by 26%/25%, respectively, and they need to stimulate the market by offering cheap tickets.
  • Abu Dhabi is one of the most prospective markets for A321XLR as they can reach nearly 5bn people in an 8-hour radius.
  • CEO also said that EU has to reshape the regulatory framework. He also noted “who needs Condor”. EU should not allow Gov’ts to bail out troubled airlines.
  • Wizz Air has not been affected by Coronavirus and bookings are on track.
  • Carbon prices are expected to increase, thus it may result in higher fuel costs.
• Recommendation: We are of the view that Wizz Air is fundamentally strong, operating amid more favourable conditions in the CEE region than rivals in Western Europe. All in all, we maintain our view that the profit guidance is still cautious, which indicates a net loss of ca. EUR 40mn for Q4/20. We reiterate our Neutral recommendation, with an e-o-y TP of GBP 43.

 

 

 

Gabor Bukta
analyst

CONCORDE SECURITIES LTD.

Hillside
55-61 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP

 

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