Equity 1 June 2015, 9:10am

ANALYST VIEW - Nomura retains 'Buy' rating for Hungary's Wizz Air

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Nomura has maintained its ‘Buy’ recommendation for Wizz Air, after the Hungarian-owned no-frills airline released its annual earnings report for FY2015 last week. It said the figures caused “no alarms and no surprises", adding that the carrier’s debut results were in line with expectations and that it has maintained its earnings forecasts. Nomura has also kept its target price of GBP 16 on hold. This translates into a 5% upside potential compared to last Friday’s closing price.

Wizz reported FY15 net profit of EUR 146 m, slightly above Nomura’s estimate of EUR 140 m, as revenues amounted to EUR 1.227 bn vs Nomura’s call for EUR 1.217bn. The key driver was marginally higher capacity (+20% vs NomE +18%) and load factor (86.7% vs NomE 86.4%) than expected, but partially offset by unit revenue (RASK) below Nomura’s estimate (+1.1% vs NomE +2.0%). Unit costs (CASK) were exactly as expected (-2.1% yr/yr).“The group provided first-time guidance for FY16E net profit of EUR 165-175m, in line with our previous estimate of EUR 169m (consensus EUR 172m). Our estimate remains relatively unchanged (EUR 170m) although there is something of a mix shift as our projected fuel costs were too light and ex-fuel costs are due to remain well under control," Nomura said in a research note on Monday.

The group expects fuel costs to fall by just 1.5% yr/yr (principally due to the negative forex movement on USD vs euro), although ex-fuel costs are guided to just +1% despite forex headwinds on aircraft rental and maintenance costs, it added.

Revenue of Average Seat-Kilometre (RASK) is expected to be down low single digit (Nomura assumes -2%), “while a lower-than-expected tax charge (6% vs previous NomE 10%) serves to offset the higher-than-expected fuel costs (EUR 447m vs previous NomE EUR 411m)."

“The immaterial changes to both PAT FY16E and FY17E (EUR 193m vs EUR 192m) ensure that our target price (calendar FY15E/16E P/E and EV/EBITDAR based, at 16x and 8x respectively) does not change from 1,600p," Nomura said.

“We continue to believe that Wizz has a strong regional market position and is very capable of both defending and building its share of traffic (the Ryanair ‘threat’ remains but is reflected in our yield guidance), while cost controls within the group are impressive," it added.

On this basis, despite the forex-related fuel costs impact, Nomura envisages a long-term period of high growth in both passengers and earnings (FY15-18E CAGR 18%).

Supported by a diverse network (no single territory represents >15% of seats available) and healthy cash position (FY15 net cash EUR 442m), Nomura has retained its ‘Buy’ recommendation for the stock.