Report

Wizz Air - We Lift PT To GBP 43 After Solid H1/20 Results

WIZZ AIR- Earnings Revision

Recommendation:  Accumulate (prev. Neutral)

Target price (12M): GBP 43.0 (prev. GBP 36.0)

  • We upgrade Wizz Air to Accumulate from Neutral and raise our 12M TP from GBP 36 to GBP 43 (+15% upside potential), reflecting solid H1/20 results, strong cash generating ULCC model, and the appreciation of the sterling.
  • Wizz Air trades at FY1 P/E of 13.4x and FY2 P/E of 11.3x multiples on our estimates (broadly in line vs. RYA’s FY1/FY2 P/E of c.13.5x/11.9x; EZJ’s FY1/FY2 P/E of c.13.5x/11.5x). We believe Wizz Air deserves higher valuation multiples as they can grow above the market average since capacity growth stalled in Europe). Wizz is expected to be capable of delivering two-digit EPS growth over the next couple of years. The carrier therefore looks attractive, thus we suggest investors to follow a Buy the Dip strategy for the stock.
  • 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. We feel that the negative market reaction for the Q2 earnings was predominantly due to three factors. One is that the market likely expected a profit guidance upgrade, but the Mgmt. disappointed investors. Second, future growth rate is much slower than they had earlier foreseen as Airbus has delivery issues over the flagship A321neo. Finally, RASK performance was weaker in Q2/20 compared to the previous quarter.
  • Despite record H1 profit, this explanation is amplified by the Management’s cautious view on winter fare environment as they will expand by 26% YoY between Dec/19-Feb/20. However, we feel that lower growth rate can support the profitability in FY21. Total airline market grows c7% YoY in the CEE and Wizz Air gives the half of this. As they mentioned on the conf. call, a significant expansion (like in Q4/20) result in RASK deterioration. In contrast, a slower growth rate could improve both yield and RASK indicators, which measure the unit revenue performance of the carriers. All in all, we maintain our view that the profit guidance is very cautious, which indicates a net loss of EUR 20-30mn for H2/20.
  • In line with Management guidance, we lowered our FY profit forecast from EUR 368mn to EUR 352mn. In H2/20, Wizz Air has to stimulate the market via low ticket prices in order to maintain its historically high utilization rate and load factor, which very likely results in declining RASK performance in the second half of this financial year. We also highlight that unit ancillary revenues are very likely to add less value in H2 (c. EUR 3 and c. EUR 1 per PAX in Q3/20 and Q4/20, respectively). As a reminder, Wizz Air introduced new cabin bag policy in NOV/18, which had a meaningful positive impact on profitability over the last 12 months. In our view, higher passenger growth will not offset above-mentioned facts, but we feel that profit guidance range is taking into account a worst case scenario, where profit slumps on weaker-than-expected revenue growth, while fuel prices are on the rise.
  • However, for FY20 starting in Apr/20, we expect improving profitability as a result of the lower fuel prices and slower pace of capacity additions. Analysing the market we see less capacity coming in the next quarters, which will support Wizz Air’s business model in the next fiscal year. Nevertheless, we also take into consideration that once the Boeing 737MAX returns to fly, this tendency will turnaround as RYA and Norwegian will add dozens of B737MAX aircraft to the market within 2-3 quarters, starting in April-May 2020, in our view. Despite that we believe RYA needs to focus on its core markets (UK, Spain) to gain its market share, thus we don’t expect a lot of cost-efficient MAX coming into the CEE markets as the profitability is adequate in the region.
  • We expect net profit to reach EUR 414mn (+18% YoY) in FY21 vs. our previous forecast of EUR 416mn. Given the recent fleet guidance, we anticipate low double-digit capacity growth (+12% YoY) for the next financial year after the Company lowered its forecast. Lower rate of fleet expansion refers to Airbus’ delivery issues, which is over the company’s scope.
  • On the risk side, we see limited downside risk for FY20 earnings. If Q3/20 would be profitable, Mgmt. should raise the upper end of its profit guidance range for this financial year. Economic slowdown, fuel price increase and Brexit, which are beyond the scope of the Company, still pose the biggest risks.

 

 

Gabor Bukta
Equity analyst

CONCORDE SECURITIES LTD.

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

 

This message and its attachments contain confidential information, and their disclosure is restricted by law and the relevant regulations. If you are not the intended recipient, it may be forbidden and illegal to disclose, copy, distribute or use the information in this message. If you are not the intended recipient, please notify the sender immediately and delete this message and its attachments. If you are a client of Concorde Securities Ltd., the standpoints and suggestions described in the message should be interpreted in accordance with the relevant parts of the agreement in effect between us.

 

DISCLAIMER

This research report has been prepared by Concorde Securities Ltd., a full-service Hungarian investment banking, investment management and brokerage firm. Concorde Securities Ltd. is under the supervision of the National Bank of Hungary in its capacity as financial supervisory authority.

Concorde Securities Ltd. is registered in Hungary and does not have any subsidiaries, branches or offices outside of Hungary. Therefore we are not allowed to provide direct investment banking services to US investors and restrictions may apply to our potential investment banking services according to your country’s jurisdiction. For important disclosures to U.S. investors, please refer of the “Notice to U.S. Investors” section at the end of this Disclaimer.

Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are their own and may be contrary to the opinions expressed in our research products, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed by our analysts or traders.

Our research, sales and trading professionals are paid based on the profitability of the respective divisions of Concorde Securities Ltd., which from time-to-time may include revenues from the firm’s capital market activity. Concorde Securities Ltd. does not prohibit analysts, salespeople and traders from maintaining a financial interest in the securities or futures of any companies that they cover or trade on their clients’ behalf in strict compliance with the Hungarian Capital Markets Act.

ANALYSTS CERTIFICATION

The research analysts undersigned and responsible for the preparation of this report hereby certify that (i) the views expressed in this research report accurately reflect their personal views about any and all of the securities or issuers referred to in this research report; (ii) no part of the analysts’ compensation was, is or will be directly or indirectly related to the specific recommendation or views expressed in this report and (iii) no part of their compensation is tied to any specific investment transactions performed by Concorde Securities Ltd.

Name and job title of individuals involved in the production of this report are disclosed at the end of this report.

Concorde Securities Ltd. is a leading manager and underwriter of Hungarian equity offerings. We have investment banking and other business relations with a substantial percentage of the companies traded on the Budapest Stock Exchange and covered by our research department. Concorde Securities Ltd, its directors and employees may have a position in these securities, which may change at any time.

Concorde Securities Ltd. acted as Lead Manager of the private and public share placement of the shares of FHB in 2003, Masterplast in 2012 and Duna House in 2016. Concorde Securities Ltd. acted as the Co-lead Manager of Gedeon Richter’s exchangeable bond issue in September 2004. Concorde Securities Ltd. has provided financial advice to Magyar Telekom.

 

EXPLANATION OF RATINGS AND METHODOLOGY

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%

Under Revision

The stock is put Under Revision if covering analyst considers new information may change the valuation materially and if this may take more time.

Coverage in transition

Coverage in transition rating is assigned to a stock if there is a change in analyst.

 

Securities prices:

Prices are taken as of the previous day’s close on the home market unless otherwise stated.

Valuations and risks:

Analysis of specific risks to set stock target prices highlighted in our investment case(s) are outlined throughout the report. For details of methodologies used to determine our price targets and risks related to the achievement of the targets referred to in the main body of the report or at on our website. ()

Research disclosures:

Concorde Securities Ltd. may have published other investment recommendations in respect of the same securities/instruments recommended in this report during the preceding 12 months. Disclosure of previous investment recommendations produced by Concorde Securities Ltd. in the previous 12 months can be found at . ()

GENERAL

This report is provided for information purposes only and does not represent an offer for sale, or the solicitation of any offer to buy or sell any securities.

The information, and any opinions, estimates and forecast have been obtained from sources believed by us to be reliable, but no representation or warranty, express or implied is made by us as to their accuracy or completeness. The information, opinions, estimates and forecasts may well be affected by subsequent changes in market conditions. This document may not be reproduced in whole or in part, or published for any purpose.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS RESEARCH REPORT IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF CONCORDE SECURITIES LTD.

 

NOTICE TO US INVESTORS  

This report was prepared, approved, published and distributed Concorde Securities Ltd. located outside of the United States (a “non-US Group Company”). This report is distributed in the U.S. by LXM LLP USA, a U.S. registered broker dealer, on behalf of   Concorde Securities Ltd. only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through LXM LLP USA.

Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. No non-US Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.

Analyst Certification. Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Please bear in mind that (i) Concorde Securities Ltd.  is the employer of the research analyst(s) responsible for the content of this report and (ii) research analysts preparing this report are resident outside the United States and are not associated persons of any US regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a US broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

 Important US Regulatory Disclosures on Subject Companies. This material was produced by Concorde Securities Ltd. solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the United States of America by LXM LLP USA and elsewhere in the world by Concorde Securities Ltd. or an authorized affiliate Concorde Securities Ltd. This document does not constitute an offer of, or an invitation by or on behalf of Concorde Securities Ltd. or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which Concorde Securities Ltd. or its Affiliates consider to be reliable. None of Concorde Securities Ltd. accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions.

LXM LLP USA assumes responsibility for the research reports content in regards to research distributed in the U.S.  LXM LLP USA or its affiliates has not managed or co-managed a public offering of securities for the subject company in the past 12 months, has not received compensation for investment banking services from the subject company in the past 12 months, does not expect to receive and does not intend to seek compensation for investment banking services from the subject company in the next 3 months.  LXM LLP USA has never owned any class of equity securities of the subject company. There are not any other actual, material conflicts of interest of LXM LLP USA at the time of the publication of this research report.  As of the publication of this report LXM LLP USA, does not make a market in the subject securities.

 

 

Provider
Concorde Securities
Concorde Securities

Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.

Analysts
Gabor Bukta

Other Reports from Concorde Securities
Other Reports from these Analysts

ResearchPool Subscriptions

Get the most out of your insights

Get in touch