Wizz Air: Time to take profits (downgraded to SELL)

Wizz Air is up over 10% since we downgraded the stock to HOLD in mid-November. We cannot rule out that the positive sentiment, driven by the vaccine news, may continue to drive the share price higher still. That said, at 8.2x our FY23E EV/EBITDA, we believe the stock is priced for perfection. With macro risks on the horizon (potential failure of the Brexit deal talks, the lack of an agreement on the EU budget, and the escalation of the rule of law dispute), we believe investors should consider using the current levels to take profits. The restrictions introduced in a number of countries in the autumn, to combat the spread of COVID-19, have been eased recently, ahead of Christmas. The number of new COVID-19 cases in the EU fell sharply throughout November, but it has stabilised in recent days. We see a risk that cases may start to rise again, and stricter restrictions may be reintroduced at some point early next year. We expect the winter to remain difficult for the airlines, and believe that Ryanair’s latest Boeing order illustrates that, even once the vaccine becomes more widely available, excess capacity may translate into pressure on pricing. We maintain our view that Wizz is the best-positioned carrier in Europe, due to its: cost leadership; most efficient fleet; and core market (CEE), with substantial organic growth potential. We continue to like the fundamentals over the mid- to long-term, and expect Wizz’s earnings to reach a record-high level in FY23E and again in FY24E. That said, we see the stock as fully valued currently and believe that, in the near term, downside risks may prevail. We have downgraded Wizz Air to SELL, but maintain our 12M price target (PT) of GBP 44/share.