Wizz Air: go big, or go home (stays BUY)

Wizz Air’s (WIZZ) shares (a high-beta play on European aviation) have been under pressure recently, on a mix of general risk-off and the war in the Levant, the P&W engine issues, and broader concerns over WIZZ growing too fast in a potentially weaker demand environment. We believe the sell-off has created an attractive entry opportunity. While this call is not without risks, from the current levels, our revised 12M price target (PT) of GBP 32/share implies 78% upside in a 1Y horizon. Thanks to the high operating and financial leverage, we believe the upside, on a 3Y horizon, could be materially higher, without stretching our assumptions. Our core thesis is simple: both WIZZ and Ryanair have, historically (2014-19), traded around 7-8x EV/EBITDAs. For the 5-6Y before COVID-19, Wizz was generating EBITDAR of around EUR 20/pax. We believe WIZZ could carry around 100m pax by FY27E (this assumes some 15-20% fewer new planes added vs. the company’s guidance). If WIZZ returns to its pre-pandemic profitability, it would generate EBITDA of c.EUR 2.0bn in FY27E. If WIZZ traded at 6x EV/EBITDA then – c.20% below its long-term average – it would imply an EV of around EUR 12bn in FY27E. We expect net debt of c.EUR 4-7bn by end-FY27E. This would imply a market cap of EUR 5-8bn, c.2-3x above the current levels. Both WIZZ and the consensus expect the net debt to decline. If the net debt is EUR 3bn by FY27E, and WIZZ trades at 7x EV/EBITDA, EUR 2bn in EBITDA would imply an EV of EUR 14bn and a market cap of EUR 11bn, c.4x above the current levels, in FY27E. We keep our BUY rating on WIZZ.