Wizz Air - SURVIVOR MODE ON

WIZZ AIR- Instant Earnings Comment

Recommendation:  BUY (prev. NEUTRAL)

Target price (12M): GBP 34.0 (prev. GBP 43.0)

 

SURVIVOR MODE ON

• We upgrade Wizz Air to BUY from NEUTRAL, with a 12mTP of 34 GBP, leaving c44% upside from the previous closing price. Wizz Air is deeply undervalued, in our view, but it’s unsurprising in light of profound effect of COVID-19 on the airlines sector. According to the latest status, Wizz Air has grounded c90% of its fleet, which is expected to be in place until the end of May. In a worse case, if our assumption has to be shifted by +1 month in capacity terms, our TP has to be changed by -0.5 GBP/sh.
• Due to its healthy liquidity position and strong balance sheet, the company is able to withdraw the crisis for up to 18-20 months if the fleet has to be grounded, based on our calculation. The carrier is confident in its ability to survive in the worst case, if grounding takes a long time. In order to preserve its fundamental strength, the Mgmt. has implemented several cost-reduction measures in third-party spending, overhead spending, discretionary spending and non-essential capital expenditure. In addition to the mentioned ones, the Board and Exec. Leadership Team will be foregoing their salaries for 5 weeks including the month of April. All of these enable to the carrier to operate without threatening layoffs.
• Wizz Air will publish a trading update this week, where we are looking forward a net profit of EUR 312mn for FY20 or a net loss of EUR 81mn for Q4/20.
• We expect the carrier will deliver pre-coronavirus profit levels by FY23.
• Based on our estimate, Wizz Air is operating at break-even with an avg. load factor of c80%. Accordingly, capacity is expected to be added back if utilization improves above the level.