Wizz Air: darkest before the dawn (stays BUY)

We have updated our model ahead of Wizz Air’s two-day sell-side event, on 15-16 September. Demand for air travel has been robust throughout the summer, and WIZZ has been flying around 30% higher capacity compared to pre COVID-19. Although the summer fares are likely to be c.10% above the pre-pandemic levels, FY23E will be another lost year from the perspective of earnings, driven by the ugly combination of high fuel costs (and the lack of fuel hedges) and compensation fees, and lower utilisation. The strong dollar adds further, albeit non-cash, pressure, as lease liabilities are worth more in EUR. The share price remains depressed, with a focus on winter and the risk of a capital increase looming. We maintain that WIZZ should not be forced to raise equity unless the COVID-19 restrictions are reintroduced, among others, as the normalisation of the booking curve should drive cash inflows in calendar 1Q23E. As long as we are right, the stock should be good value at these levels, for investors with a 6-12M+ horizon. Although purchasing power will be hit by energy prices and weaker growth, we expect WIZZ to turn profitable from next year onwards, and may start to benefit from the market share gains reached during the pandemic. We maintain our BUY rating, but reduce our 12M price target (PT) to GBP 30/share, with the drop driven by the losses incurred this year and our more cautious outlook on pricing for next year, reflecting the weaker macro backdrop and the pressure on consumers.