The FTSE 250 index may be up 5.7% over the last year, but this is nothing compared to some of its constituents. Take budget airline Wizz Air (LSE: WIZZ). In the last 12 months, its stock has climbed a stonking 62%.
Can this momentum continue? Based on today’s excellent set of final results and bullish words from management, it’s certainly possible.
Flying high
In the year to the end of March, the number of passengers carried by the airline rose by just under 25% year on year to a record 29.6m. Revenue flew 24% higher at €1.95bn and net profit came in at a record €275m — 22.1% more than in 2016/17.
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With numbers as good as these, it’s no surprise that the people running the firm “remain very optimistic” going forward. Indeed, CEO József Váradi predicts that the company’s low fares and expanding network will lead to an estimated 20% rise in passenger numbers over the next financial year to 36m. Net profit of between €310 million and €340 million has already been pencilled in.
While there can be little doubt that the £2.3bn cap airline is a class act, the question remains as to whether the ‘easy money’ has already made by investors. With the shares up another 4% in early trading, it would seem that many believe even better times lie ahead.
I’m tempted to agree. While a forward price-to-earnings (P/E) ratio of 14 for the next financial year is on par with industry peers, it’s worth pointing out that the company’s returns on capital and operating margins are notably higher. Wizz’s finances are also in excellent shape with €980m of free cash on its books at the end of the reporting period. Aside from this, A PEG ratio of just 0.84 suggests that a lot of growth still isn’t factored into the price of the stock.
While income investors may be better suited to British Airways owner International Consolidated Airlines for their dividend fix, I certainly wouldn’t discourage growth enthusiasts from considering Wizz for their suitably diversified portfolios.
All priced in?
FTSE 250 peer SSP Group (LSE: SSPG) is another stock that’s been performing far better than the index over the last year, rising 39% in value.
Earlier this month, the food and beverage outlet operator — which occupies sites at many of the airports that Wizz flies to and from — announced a 32.6% rise in underlying operating profit (at constant currency). Revenue also rose almost 12% to £1.18bn over the six months to the end of March, with 2% of this coming from two recent acquisitions (Stockheim in Germany and TFS in India). While the forecast 1.5% dividend yield befits its growth credentials, it’s nevertheless worth noting management’s decision to hike the interim payout by a full 50% to 4.8p per share.
With new contracts in the pipeline, CEO Kate Swann reflected that H2 had begun in line with expectations, even if “a degree of uncertainty always exists around passenger numbers in the short term”.
When I last looked at SSP in November, its shares were changing hands for 656p. Today, they’re at roughly the same value, suggesting that a lot of positive news already appears to be have been factored in by the market. A P/E ratio of 28 for the current year continues to look pretty high so I’m content to wait for a general market sell-off before I consider building a position.
