Wizz Air is one of the leading low-cost airlines in Europe and the largest in Central and Eastern Europe. Founded in 2003, Wizz Air carried more than 33 million passengers in the past twelve months and continues to grow, adding new countries, new destinations and new opportunities to travel. Wizz Air flies to 44 countries and counts on more than 3,500 enthusiastic aviation professionals from more than 50 countries – cabin crew, pilots, sales, operations, communications, administration, and marketing for the company’s success.

Financial Highlights (Q3 FY2019, € million)

(Source: Quarterly Reports, Company Website)

In Q3 FY2019, the total revenue surged by 21.2 per cent to €512.7 million as compared to the same period last year data of €422.9 million, due to the passenger growth by 14.9 per cent to 8.1 million. The company’s ticket revenues rose by 20.4 per cent to €291.1 million; Ancillary revenues climbed to €221.5 million, reporting an increase of 22.3 per cent; ancillary revenue per passenger surged by €1.5 to €27.1 per passenger; and unit revenues to €3.54 cents per ASK (available seat kilometre), was up by 5.6 per cent. Total operating costs increased by 25.6 per cent to €512.7 million, and total unit costs surged by 9.3 per cent to €3.53 cents per (ASK), due to the increase of fuel unit costs and ex-fuel unit costs. EBITDAR climbed by 2.0 per cent during Q3 FY19 to €106.3 million from €104.2 million in Q3 FY18. However, the EBITDAR margin was down as compared with the last year data. Profit for the period decreased by 87.6 per cent to €1.7 million, resulting in a decline in profit margin for the period, which fell 3.0 ppts. Cash and cash equivalents increased by 12.1 per cent to €1093.5 million, up from €975.1 million a year ago.

Share Price Performance

Daily Chart as at Mar-26-19, before the market close (Source: Thomson Reuters)

At the time of writing, (as on March 26, 2019, at 11:40 AM GMT) shares of Wizz Air Holdings PLC were quoting at GBX 3,042, increased by 5 points or 0.165% against its previous day closing. During the last one-year shares have reached a 52w high of GBX 3,814 and a 52w low of GBX 2,300. The outstanding market capitalisation of the company stood at £2.21 billion. At the current price (quoted in the price chart) stock was trading 20.24% below its 52w high and 32.26% above its 52w low. One-year price return of the stock stood at negative 5.54%.

Risk Assessments and Growth Prospects
The bankruptcy of competitors and subsequent calls for consolidation presents an opportunity as well as a threat to the company. A decline in demand for air travel may lead to excess capacity, adversely impacting the financials. Climate change is leading to unstable weathers, including a higher number of storms. This can impact the company’s operations, including a rise in cancelled or delayed flights which can increase disruption costs. However, a sudden increase in jet fuel prices or fluctuations in interest rate can impact the financials. The industry on the whole has seen an improved outlook with the fall in fuel, although the demand outlook remains uncertain. Furthermore, we continue to believe that the low-cost airlines will take market share from the more traditional flag carriers and Wizz is well placed to continue to grow at a stronger rate.

Valuation Methodology
Method: EV/Sales Multiple Approach (NTM)

(Note: All the estimates and peers information have been taken from Thomson Reuters. Euro figures have been converted into GBP; EUR: GBP - 0.86)

Conclusion
Although industry-wide disruption provided a tough working environment for the industry, it was still able to post strong financials. Uncertainty around Brexit and the wider macro-economic environment has put pressure on the stock lately, but the company is financially well-positioned, with a net cash position of €1,093.5 million at 31 December 2018, to tackle the challenges. Strong capacity growth will help the company to minimize cost. The company has estimated 15-20% p.a. capacity growth over the coming years. Based on the strong growth prospects and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 3,037 (as on 25^th March 2019) with single-digit upside potential based on 0.73x NTM EV/Sales (approx.) on FY19E sales.
 
*The buy recommendation is valid for the current price as covered in the report (as on Mar-26-19).

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