Wizz Air: Slip into the autumn shade (downgraded to HOLD)

Following our upgrade to BUY in May, Wizz Air is up 15%, having almost reached our former price target (PT) of EUR 54/share. We remain long-term bullish. Its cost leadership – improved further by the ongoing transition into A321neos – makes Wizz ideally positioned to benefit from the eventual rebound in demand, in our view; while we expect the FY23E capacity to exceed the pre-pandemic FY20 levels by over 40%. That said, following the recent rally, the stock is trading at a EV/EBITDA of 8x on our FY23E, in line with its pre-pandemic 5Y average. Entering the low season, we believe the near-term upside could be limited, and we remain more cautious than the consensus on the FY22E results. We expect both 3Q FY22 and 4Q FY22 to be loss-making, with capacity exceeding demand, translating into pressure on load factors and ticket prices. For Wizz, this could be exacerbated by the costs of the ramp-up of the operations ahead of next summer, which will be necessary if Wizz is to deliver on its ambitious growth targets. While we expect FY22E to undershoot the consensus expectations, the following fiscal years could see profits north of EUR 500m, in our view, well above the EUR 250-300m that Wizz was earning in its most profitable years. We have adjusted our 12M PT to GBP 57/share and downgraded the stock to HOLD.