Wizz Air’s share performance and future prospects are under scrutiny by investors and analysts. The airline’s shares have decreased by over 16 percent in the past year and are down 45 percent since the beginning of 2022, closing at 2,236p on Friday. Despite these declines, the company reported a pre-tax profit of €280 million for the three months ending December 31, reversing a £124 million net loss for the first half of 2023.
A significant challenge for Wizz Air stems from issues with Pratt & Whitney engines. These problems are projected to ground a quarter of its fleet by summer 2025, potentially increasing to half by 2028 in a worst-case scenario. This issue is expected to reduce Wizz Air’s capacity by approximately 10 percent, equating to 25,000 fewer passengers per day. However, the airline is receiving compensating cash payments from Pratt & Whitney, which one analyst estimated could be up to $500 million annually.
Analysts hold mixed views on Wizz Air’s investment potential. Liberum has a ‘buy’ rating with a target price of 2,500p, citing the capacity constraints as an opportunity for the airline to secure higher fares and noting the benefit of engine compensation. Liberum anticipates Wizz Air’s capacity to be 11 percent lower than previously forecast due to the engine issues. In contrast, Redburn Atlantic maintains a ‘neutral’ rating with a target price of 2,400p, questioning the airline’s valuation given its lower profitability compared to competitors like Ryanair and EasyJet, as well as the lasting impact of the engine problems. Redburn analysts expect Wizz Air’s capacity to grow by 16 percent over the next 12 to 18 months due to new aircraft deliveries, which should partially offset the engine issues, and forecast pre-tax profits of €400 million.
Wizz Air’s profitability metrics are lower than its rivals, with a trailing 12-month return on capital employed of 4.5 percent, significantly below Ryanair’s average of 14.5 percent. Its average profit margin over the last decade stands at 2.1 percent, compared to an industry average of 8.5 percent for EasyJet and Ryanair. The company also carries a net debt of €4.9 billion, with an enterprise value of €7.2 billion. Positively, the third quarter saw yields increase by 11 percent and load factor rise by 3.2 percentage points to 87.5 percent, alongside a 15 percent year-on-year decrease in fuel costs. The airline’s strategic focus on Eastern Europe and its fleet modernization with A321neos are considered long-term advantages.
Key Points
- Shares slid by more than 16 percent over the past year.
- Shares are down 45 percent since the start of 2022.
- Current share price of 2,236p.
- Pre-tax profit of €280 million in the three months to December 31.
- Net loss of £124 million for the first half of 2023.
- Net debt of €4.9 billion.
- Enterprise value of €7.2 billion.
- Trailing 12-month return on capital employed (ROCE) of 4.5 percent.
- Ryanair’s average ROCE is 14.5 percent.
- Wizz Air’s average profit margin over the last decade is 2.1 percent.
- Industry average profit margin for EasyJet and Ryanair is 8.5 percent.
- Yields increased by 11 percent in the third quarter.
- Load factor rose by 3.2 percentage points to 87.5 percent in the third quarter.
- Fuel costs are down 15 percent year-on-year.
- A quarter of its fleet will be grounded by summer 2025 due to Pratt & Whitney engine issues.
- Up to half of its fleet may be out of action by 2028 due to engine issues.
- Pratt & Whitney problems will cost approximately 10 percent of its capacity.
- Impact of engine issues is 25,000 extra passengers per day lost.
- Estimated compensation from Pratt & Whitney up to $500 million per year.
- Liberum’s target price of 2,500p.
- Liberum expects capacity to be 11 percent lower than previously forecast.
- Redburn Atlantic’s target price of 2,400p.
- Redburn analysts expect capacity to grow by 16 percent over the next 12 to 18 months.
- Redburn Atlantic estimates pre-tax profits of €400 million.
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