Wizz Air: Float like a butterfly (upgraded to BUY)

Wizz Air is down some 15% since we downgraded the stock to HOLD three weeks ago. We maintain our view that the coming winter is likely to be challenging, and the consensus near-term projections may be slightly too optimistic. We maintain our estimate of a net loss of EUR 200-250m for the current financial year. That said, thanks to the encouraging vaccination rollout in Europe and the adoption of the EU travel pass, we expect the intra-EU traffic to rebound substantially next year, and we expect the short-haul, low-cost carriers to lead the recovery. We pencil in Wizz to reach around EUR 500m in profit next year, well above the EUR 250-300m that it has been earning in its most profitable years. While the rising fuel costs are adding to the near-term headwinds, we believe that next year’s profitability should not be affected significantly. The booking curve remains short, and we believe that, aiming to cover the variable costs, the EU airlines are likely to pass the fuel costs onto customers. We may see further near-term pressure on the share price but, on a 12M+ horizon, we see Wizz Air as good value at the current levels, thanks to its leading unit costs and growth prospects. Placing an order for additional aircraft could confirm the more aggressive mid- to long-term growth outlook and drive consensus upgrades, in our view. We have adjusted our 12M price target (PT) to GBP 55/share, and upgraded our rating to BUY (from Hold).