Wizz Air: end-summer liquidity ahead of expectations (stays BUY)

WIZZ flew c.30% higher capacity compared to pre COVID-19, at an 11% higher RASK in 2Q FY23, driven by high ancillary revenue. During the winter, WIZZ expects to fly around 35% higher capacity vs. 2H FY20. So far, it sees no indications of demand falling off a cliff, and expects the RASK to exceed the pre-pandemic levels by around a mid-single digit pace. Crucially, Wizz Air ended the quarter with over 1.6bn of liquidity, a small improvement qoq. This is better than we had been expecting. While the cash balance will be reduced during the winter, we believe that, from March-onwards, WIZZ should start to accumulate unflown revenue again. Wizz Air has also secured access to a USD 300m PDP-backed RCF. We reiterate our view that we do not see a distressed capital increase as a base case. In the absence of a dilution, we believe that the stock should be attractive at current levels – although challenges remain. In particular, we expect attention to be on: 1) the cash burn during the winter; 2) demand and pricing strength; 3) fuel prices; 4) the degree of utilisation and CASK improvement; and 5) the allocation of new capacity. Although purchasing power is likely to be hit, we expect the efficient fleet and improvements in utilisation and CASK to enable WIZZ to turn profitable from next year onwards, as the recent market share gains start paying off. We maintain our BUY rating on the stock, as well as our 12M price target (PT) of GBP 30/share.