High-flying mid-cap Wizz Air continues to impress after today's upgrade to full-year guidance.
Viewed by some as the pick of the listed European airlines, Wizz Air Holdings (LSE:WIZZ) further enhanced its reputation today with record quarterly profits and an upgrade to City guidance.
Shares in the low-cost carrier, which serves 710 routes in central and eastern Europe, were close to a new all-time high at 4,271p after jumping 4% in the wake of the third quarter update.
Net profits of 21.4 million euros (£18.1 million) were a record for the Q3 period and much better than the 17 million euros expected in the City. The beat reflects a 25% rise in revenues to 637.3 million euros (£539.1 million) after the airline carried 10 million passengers over the three months to December 31.
As well as the continued strong top-line growth, analysts were particularly impressed by a 5.6% year-on-year decline in the airline's cost metric for the period, having benefited from lower staff costs and economies of scale linked to the company's rapid expansion.
Costs per available seat kilometre — excluding fuel — are now expected to be 1% lower across the financial year, despite a strong comparative figure in the current quarter. This means that 2020 profits guidance has been raised to between 350 million and 355 million euros (£296 million-£300 million), compared with up to 350 million euros previously.
Deutsche Bank rates the Hungary-based business as its top pick from the European airlines and transportation sector, adding that shares were attractively valued on a 2021 price/earnings multiple of 13.5x. It has a price target of 4,550p.
In a recent note highlighting the bank's top eight mid-cap picks for 2020, Deutsche said Wizz deserved to be trading at a premium to rivals easyJet (LSE:EZJ) and Ryanair Holdings (LSE:RYA). They said this view was supported by fast-growing economies in central and eastern Europe, with the airline on track to deliver the highest operating margin of all the European airlines in its coverage.
Wizz has already announced 105 new routes since the beginning of the current financial year, with the fleet of 120 aircraft one of the youngest of any major European airline.
CEO József Váradi said today that current trading conditions continue to be favourable with a “relatively benign” competitive environment, stable fuel prices and a positive yield backdrop. He added:
“We believe that the company is uniquely positioned for long term value creation.
“We will continue to enhance our market-leading positions with the roll out of the game-changing, attractively priced and financed A321 neo aircraft which will enable Wizz Air to continue widening our cost advantage over our competitors.”
Analysts at Barclays said Wizz looked set to finish the financial year with strong momentum, with the outlook for 2021 also promising. They have a price target of 4,500p.
Wizz recently announced plans to launch its first airline outside of Europe, in Abu Dhabi. Váradi believes the carrier, which is expected to be operational in the second half of this year, has the potential to be operating more than 50 aircraft within ten years.
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