Wizz Air PLC (LON:WIZZ) is the only low-cost airline that JPMorgan remains even remotely keen on after a review of the European players.
The broker has made meaningful cuts to its current year forecasts for Wizz Air, Ryanair Holdings PLC (LON:RYA) and easyJet PLC (LON:EZJ), reflecting the ongoing travel restrictions across Europe and higher fuel and carbon costs.
Cuts to its forecasts for next year are more modest, thanks to the roll-out of vaccinations across continental Europe, where the pace has picked up in the last three weeks.
The broker thinks all three carriers will be back in profit in 2022.
JPMorgan (JPM) describes its “overweight” recommendation on Wizz Air as “contrarian” as eight other brokers who cover the stock rate it as a “sell”.
“This surprises us for many reasons. (1) WIZZ has a solid balance sheet with good liquidity. (2) It undoubtedly has the best multi-year growth story in the sector. (3) With an ultra-low cost base, we expect WIZZ to return to the upper end of its target net income margin (13% to 15%) in the next few years. (4) Trading liquidity has improved following the recent Indigo placing; the free float is now c61% of the fully diluted share count and c91% of the ordinary shares,” JPM said.
In contrast, easyJet has only two “sell” ratings among the analyst community while Ryanair has only one; JPM is neutral on both.
For easyJet, JPM is forecasting a pre-tax loss of £1.31bn for the year to the end of September, having previously forecast a loss of £914mln.
EasyJet is the most geared of the three low-cost carriers to the likely re-opening of European travel later this summer, JPM asserts.
Despite the slashing of the profit forecast, its easyJet price target, based on earnings multiples enjoyed by its peers, rises to 845p from 710p.
Ryanair is now expected to post a net loss of €138mln in the year to the end of March 2002, compared to JPM’s previous forecast of a profit of €146mln.
“On Jan 19th this year we moved RYA from OW [overweight] to Neutral, arguing that RYA’s restrictions on shareholders (post the end of the Brexit transition on Dec 31st 2020) were too severe and would limit demand for the shares, especially from UK investors,” JPM said.
“We believe these restrictions, at least in part, explain RYA’s underperformance in 2021 YTD [year-to-date]. Moreover, in the next 12 months at least, we are sceptical that the EU will change its policy and allow UK investors to be treated as ‘Qualifying Nationals’ for the purpose of owning shares in European airlines. We believe the ongoing restrictions RYA has imposed on its shares will continue to be a headwind to their performance,” JPMorgan said.