Before the pandemic, FTSE 250 airline operator Wizz Air (LSE:WIZZ) was valued at £5.5bn. It was Europe’s fastest growing airline and was nearing an ascent to the FTSE 100.
Today, however, Wizz Air is valued at £1.8bn, and it’s struggled to reestablish itself over the past 12 months.
In addition to industry-wide issues including raised fuel prices and labour shortages, Wizz said it would have to ground 45 planes this financial year due to issues with the Pratt & Whitney Geared Turbofan (GTF).
So, let’s take a closer look at the company’s results, and its fundamentals.
Guidance disappoints
On 9 November, the low-cost airline revised its full-year profit forecast to the lower end of guidance, citing a challenging environment.
The company expects net income for the year ending March 2024 to be €350m-€400m, down from the earlier guidance of €350m-€450m, attributing the adjustment to ongoing macro environment uncertainty and difficult operating conditions.
Issues with the Pratt & Whitney GTF, leading to a 10% capacity reduction in the second half, and the suspension of Israel capacity due to regional conflict contribute to the challenges.
Despite these issues, Wizz Air reported a robust first-half performance. The firm noted a 39% increase in total revenues to €3.05bn, a 25% rise in passenger numbers to 33m, and an improved load factor of 92.6%.
EBITDA surged 303% to €878m, and the EBITDA margin rose to 28.8%. CEO József Váradi highlighted improved operational performance but acknowledged the impact of ongoing challenges on the company’s outlook.
It’s not cheap, for now
Wizz Air is currently trading near its 52-week low, however, that doesn’t mean it’s cheap. Instead we need to look at valuation metrics notably the price-to-earnings (P/E) ratio.
| 2023/24 | 2024/25 | 2025/26 | |
| EPS | £2.6 | £3.6 | £5 |
| P/E | 6.7 | 4.8 | 3.5 |
Using projected earnings per share figures for the next three years, we can see that analysts expect an upturn in profitability moving forward.
While these valuation figures aren’t overly expensive compared to the rest of the index, it’s not overly cheap compared to some of its peers.
My top pick in the sector is IAG and that stock is trading at just 3.8 times forward earnings for the current year. Although it is worth highlighting that analysts aren’t expecting the same level of growth as Wizz across the medium term.
Soaring again
As the forecasts suggest, Wizz Air is likely to perform better towards the end of the medium term. We can assume that moderating fuel costs would improve margin compression for this budget airline, and then there are many geopolitical considerations.
Out of the FTSE-listed airlines, Wizz was the most impacted by Russia’s invasion of Ukraine. As such, an end to the war would likely benefit it and its eastern-facing operations more than its peers. Of course, this is hypothetical, but it goes to show the impact geopolitical events can have on airlines.
Assuming oil prices don’t surge even more, and Europe’s conflict zones don’t bubble over, I’d expect to see Wizz Air soaring again. However, it remains a second choice. I prefer IAG and the diversity of its operations and destinations.
