WOOD Flash – Wizz Air: 2Q FY23 – strong liquidity position ahead of the winter

Our key takeaways from Wizz Air’s 2Q FY23 results are: 1) end-of September liquidity higher than expected; 2) the USD 300m committed credit facility provides additional buffer; 3) RASK a touch ahead of expectations; and 4) no indications of demand or prices falling off a cliff. We were positively surprised by Fitch’s decision to affirm the IG rating. That said, the balance sheet, affected by two years of COVID-19, this year’s absence of fuel hedges, and the underlying growth throughout this period, is the key weakness. Another black-swan event may necessitate a capital increase. That said, as we move into a level playing field on fuel, Wizz Air should return to robust profitability, allowing it to de-lever, given the substantial delta between the ex-fuel unit costs of Wizz and Ryanair vs. those of all the other European airlines. We maintain our view that the stock should be good value at the current levels, and we do not see a capital increase as a base case. Going forward, we expect attention to be on: 1) winter cash burn; 2) the strength of demand and pricing (can Wizz grow ancillaries from the current high base?); 3) fuel prices; 4) the allocation of new capacity; and 5) utilisation and the extent of the improvement in the ex-fuel CASK in FY24E. The transition into A321neos, and exposure to markets with attractive growth potential and steady CFR traffic are the key angles of the equity story. In the short term, we see an improvement in utilisation, the normalisation of ex-fuel unit costs and the successful deployment of new capacity as the key operational milestones.