Interactive Investor

Insider: a post-Covid low triggers buying at this mid-cap

13th June 2022 07:48

Graeme Evans from interactive investor

It's lost half its value in 2022 so far, but the company president has placed a bet on the future of his business. Another FTSE 250 exec hopes he's buying at the bottom.

A £50,000 purchase of Wizz Air Holdings (LSE:WIZZ) shares by the airline’s recently-appointed president helped steady the FTSE 250 stock at the end of another turbulent week for the industry.

Robert Carey, who was chief commercial officer at easyJet (LSE:EZJ) before landing his new role last summer, bought Wizz shares at 2,377p on Thursday, near to the lowest level for the eastern Europe-focused carrier since the early days of the Covid pandemic.

The shares traded even lower at 2,200p on Friday morning, until the disclosure of Carey’s purchase helped the stock recover to 2,324p by lunchtime and 2,287p at the finish of a session when the majority of FTSE 350-listed companies were in the red.

As well as Carey, many ii customers believe that Wizz offers value at current prices after it ranked among the top-10 most traded stocks on our platform on Thursday and Friday.

The buying followed Wednesday’s annual results, when chief executive József Váradi reported a wider loss of €642.5 million (£548.5 million) but spoke optimistically about the fastest growth in the industry and the airline’s “largest ever summer flying programme”.

Planned capacity growth for the current quarter is over 30%, but even this won’t prevent another loss for the period as operators grapple with a multitude of headwinds.

These include the current staffing crisis across European airports, which has meant that Wizz is unable to provide financial guidance beyond the June quarter. Rising fuel costs have also darkened stock market sentiment, particularly with Wizz effectively unhedged beyond August and reliant on higher fares and fuller planes to offset the cost pressures.

Wizz reported that average fares are trending higher at low single digits and that passenger load factors are at around 85% for the quarter, rising to upper single digits and above 90% for the following peak summer period.

The company, which carried more than 27 million passengers in the last financial year, hasn’t been deterred from continuing the robust expansion plans that should see it end the current financial year with a fleet of 182 aircraft, up from 153 in March.

It is also looking further afield after recently announcing a potential expansion of operations into Saudi Arabia and an intention to establish a new airline subsidiary in Malta.

City forecasts moved lower in the wake of the results, but new price targets still leave room for upside. Morgan Stanley and Bank of America both cut by 100p to 2,700p and 2,900p respectively, levels compared with Wizz trading at more than 5,000p prior to the pandemic.

Bank of America said: “Wizz's unhedged fuel position and ambitious growth plans will lead to a slower recovery in margins than its low-cost peers, in our view. But we still see it as well positioned to gain market share in the medium-term given an ultra-low cost base.”

However, the bank said net debt of €2.75 billion (£2.35 billion) was higher than it would have expected amid City concern over a possible capital raise.

Peel Hunt believes the debt is manageable as long as there’s a recovery in underlying earnings, adding that some protection against higher fuel costs came from the company’s efficient fleet of now largely A321neos.

The broker has a price target of 3,400p, which it reduced from 4,700p after forecasting an operating loss for the current year and cutting its earnings per share forecast by 23%. It added: “If operational challenges and costs can be managed, and yields increased, the rewards are attractive.”

Buying at the bottom?

A near-£20,000 investment involving a board member at FTSE 250-listed Bodycote (LSE:BOY) is already 5% lower, reflecting a tough end to the week for shares in the thermal processing and heat treatment firm.

The purchase linked to non-executive director Kevin Boyd was made on Wednesday at 654p, but the stock weakened on Friday to 621p and is not far from May’s low for 2022 of 593p.

The aerospace and automotive specialist had been 900p in late September, which is where Peel Hunt thinks Bodycote shares can return based on a record of cost management in softer markets and usually being one of the first to turn recovery into earnings.

The broker said: “This reflects one of the most flexible cost bases in the sector and therefore places emphasis on when rather than if,  despite the next few months being set to be characterised by uncertainty.

“In addition, the low leverage provides a further opportunity to accelerate the pace of recovery when it manifests itself.”

Bodycote’s last update at the end of May confirmed trading in line with expectations, but with unprecedented volatility emerging in its workflows due to material shortages among customers.

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