Wizz Air: despite setbacks, upside risks may prevail (stays BUY)
Despite our estimates consistently being lower than both consensus and the company guidance last year, we are cutting our F26E forecasts materially once more. The mismatch between major maintenance and aircraft returns is poorly timed, and the resulting pressure on ex. fuel CASK (caskx) could be significant. Given Wizz Air’s weak track record on guidance and the risk of further surprises, we now assume that caskx rises by another c.10% yoy, to EUR 3.1/ASK. On our estimates, with fuel and RASK stable, a 5-10% yoy rise in caskx implies a EUR 0-200m loss for F26E (ex. FX). We pencil in a EUR 143m loss as our base case. This suggests a sixth consecutive weak year. Without an earnings recovery, we see few catalysts to drive the stock meaningfully higher. That said, we believe the risks could be still skewed to the upside from current levels. EV (ex. leases) of c.EUR 940m is near to the EUR 926m of cash parked with Airbus as pre-delivery payments (PDP). While we believe the P&L will remain weak, especially as RASK guidance may prove to be optimistic, cash flow could look better. A resumption of growth may help working capital, and PDP holidays could support FCF further over the next 2Y. The GTF engine issue should ease gradually, and the reopening of Ukraine and/or Israel could provide upside to demand and pricing. As a return to profitability could drive material upside, we maintain our contrarian view: despite our lower near-term forecast vs. consensus, we retain our BUY rating, reducing our 12M PT to GBP 15/share.Wizz Air Holding is a European airline. As of Mar 31 2017, Co. provided more than 500 routes from 28 bases, connecting 141 destinations across 42 countries. Co. has two reportable segments: the airline and the tour operator business units, marketed under the Wizz Air and Wizz Tours brand names, respectively. Wizz Air sells flight tickets and related services to external customers and, to an extent, to Wizz Tours. Wizz Tours sells travel packages to external customers covering the network of Wizz Air.
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