Wizz Air - Promising Outlook Even If Rivals Are Suffering

WIZZ AIR- Instant Earnings Comment

Recommendation:  Accumulate

Target price (12M): GBP 36.0 (unch.)

 

• Highlights: In a nutshell, the company reported a net profit of EUR 295.3mn (+7.3% YoY) from continuing operations (adjusted for Wizz Tour ceased earlier last year) for FY19 above Bloomberg consensus estimate of EUR 285.7mn or our estimate of EUR 286.3mn, representing a 3.3% or 3.1% positive surprise, respectively. However, better than expected results were basically attributable to a credit item totalling EUR 44.5mn relating to various aircraft asset sale and leaseback transactions and certain supplier contract negotiations.
• Wizz delivered a PAX growth of 11% YoY in Q4. Thanks to improving load factor, which stood at 92.0% in the reported quarter and strong ancillary recovery, total revenues grew 13.7% YoY to EUR 427mn in Q4/19 compared to EUR 376mn in Q4/18. Ancillary revenues accounted for 49.4% of the total in the reported quarter, a touch below our estimate of 50.7%, meaning an all-time-high ratio. The carrier reported an EBIT of EUR 1mn. It was driven by (1) the increasing fuel expenses (2) higher salaries (+26% YoY). Wizz Air guided a net profit range of between EUR 320-350mn, mid-point is 4% below Bloomberg estimate of EUR 352mn and 9% below our estimate of EUR 368mn. We are of the view that it is rather a conservative guidance in light of the solid ancillary performance and strong RASK outlook for Q1/20.

 

• Outlook/Conf. call takeaways: Wizz Air is seeking to capitalize on market consolidation as well. Turning to delivery issues, in case of late deliveries, the Management highlighted that Wizz receives significant compensation from Airbus. Airbus needs to pay penalty in case of missing deadlines. Issues will very likely occur over the next couple of years as a result of the high demand for the game-changer aircraft, which might have a negligible negative impact on the fleet and network expansion, but it makes Wizz possible to renegotiate contracts with the supplier.

 

• Q1/20: FY20 started with a very strong PAX growth of 19% YoY in April as a result of the Easter effect. We believe that MAY traffic statistics will include another positive surprise. Management indicated a solid RASK forecast of +4% YoY for Q1. Moreover, it is expected to continue into the summer, according to them. ATC strikes could be the greatest threat during the next months, but there is no signs how it will affect Wizz Air’s operation. Wizz Air is poised to manage delays as the carrier will leave a spare aircraft on its biggest bases.

 

• Recommendation: We reiterate our recommendation on Accumulate with a 12-m TP of GBP 36.0.

 

 

Gabor Bukta
analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP

 

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