WOOD Flash – Wizz Air: baby, don't hurt me, no more

As the brutal sell-off continues, Wizz Air is approaching the levels at which the stock went public in early-2015. In EUR terms, the stock is trading less than 5% above the IPO level. We believe the key reason behind the latest bout of selling pressure is the rapidly deteriorating macro outlook, driven by the gas shortages in Europe, the worsening tensions between EU/US and Russia, and the hawkish Fed. The dollar strength is likely to lead to further non-cash losses, potentially pushing the equity deeper into the red, and increasing the value of the debt on Wizz’s EUR-denominated balance sheet. The energy crisis has started to affect production chains in Europe already, which could drive an increase in unemployment. The key challenge is the risk for purchasing power and consumption: customers may cut back on discretionary spending, exacerbating the pressure during the seasonally weak winter period. We cannot rule out that the macro could be so adverse that it forces Wizz Air to raise capital. Looking at the share price, we believe the market is pricing in a distressed equity raising already.