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UBS upgrades Wizz Air to ‘Buy’, cites underpenetrated markets and management record among positives

The bank said it expected double-digit traffic growth for the airline, adding that the bulk of its markets were predicted to have higher GDP growth and “underpenetrated travel markets”
Wizz aircraft
Analysts added that as “an ultra-low cost carrier” Wizz was able to take market share from European network carriers

Wizz Air Holdings PLC (LON:WIZZ) has been upgraded to ‘Buy’ from ‘Neutral’ by UBS, with analysts citing underpenetrated markets and management record as key elements of a positive medium-term outlook.

The Swiss bank said it expected double-digit traffic growth for the FTSE 250 airline over its forecast period, saying the bulk of its markets, mostly in central and eastern Europe, were expected to have higher GDP growth than in western Europe and “underpenetrated travel markets”.

READ: Wizz Air shares take a dive as it downgrades full-year profit guidance on fuel prices and summer disruption

Analysts added that the company’s status as “an ultra-low-cost carrier” gave it an ability to take market share away from the European network carriers, as well as having more than 250 planes on order which would see the fleet size nearly triple by 2027.

A “proven record of execution by the management team” was also cited, with UBS adding that it saw “potential for material share price upside” despite recent volatility in oil prices which had seen airlines struggling to react fast enough on the capacity front.

Wizz itself had cited higher oil prices as well as strike disruption over the summer months when it downgraded its full-year net profit guidance in its interim results earlier this month.

“Should we see further capacity discipline in the industry and aided by Easter timing, it is possible that Wizz will see mid to high yield performance during year end 2020. If we assume 6% yield growth, we could see fair value upside to more than, £40 all else being equal” the analysts said.

Despite the upgrade, UBS trimmed its target price for the airline to 3,450p from 3,750p on valuation grounds as it reduced its enterprise value/underlying earnings (EBITDA) multiple to 7x from 8x to “reflect the uncertainties of where we are in the cycle”.

In late-morning trading Wednesday, Wizz shares were up 4.2% at 2,916p, a 15% discount to UBS’s target price.

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