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HSBC downgrades Wizz Air after results
29th Jul 2021 14:29
(Sharecast News) - HSBC downgraded Wizz Air to 'reduce' from 'hold' on Thursday, cutting the price target to 4,100p from 4,500p after its first-quarter results as it said the stock offers good growth but not without risks.
"It is clear to us that Wizz is offering investors a story of strong growth," the bank said. "Not only did it outline a five-year 20% growth plan, but it even added its goal of 500 aircraft by 2030, which we estimate would see its growth rate accelerate to 25% over the last three years of the period.
"On the results call for Q1 FY22, CEO Jozsef Varadi suggested that the company's target for a net margin of 13- 15% could be achieved in FY23. We do see a strong growth opportunity for Wizz, and we expect it inflect to solid profitability in FY23 with margins strengthening thereafter."
However, HSBC said there is excessive optimism in the market towards the budget airline.
The bank has a number of concerns. It argued that the FY22 loss will likely be deeper than the consensus forecast as Wizz's high growth weighs on its unit revenues.
In addition, it said revenue weakness in FY22 will mean that even with maturing routes and strengthening yields in FY23, it is unlikely that target margins will be in sight for FY23.
"Wizz's high growth rate amid low fares will be highly vulnerable to incremental environmental legislation," it said, adding that the company's ownership and control structure may not be sustainable as EU legislation evolves.
"It is clear to us that Wizz is offering investors a story of strong growth," the bank said. "Not only did it outline a five-year 20% growth plan, but it even added its goal of 500 aircraft by 2030, which we estimate would see its growth rate accelerate to 25% over the last three years of the period.
"On the results call for Q1 FY22, CEO Jozsef Varadi suggested that the company's target for a net margin of 13- 15% could be achieved in FY23. We do see a strong growth opportunity for Wizz, and we expect it inflect to solid profitability in FY23 with margins strengthening thereafter."
However, HSBC said there is excessive optimism in the market towards the budget airline.
The bank has a number of concerns. It argued that the FY22 loss will likely be deeper than the consensus forecast as Wizz's high growth weighs on its unit revenues.
In addition, it said revenue weakness in FY22 will mean that even with maturing routes and strengthening yields in FY23, it is unlikely that target margins will be in sight for FY23.
"Wizz's high growth rate amid low fares will be highly vulnerable to incremental environmental legislation," it said, adding that the company's ownership and control structure may not be sustainable as EU legislation evolves.