Liam Sharvell - FX trader, Analyst and Headhunter
Wizz Air Holdings PLC, Transportation Market Cap - £2B
With Brexit looming and uncertainty rife across the stock market, identifying promising shares can be exceptionally challenging, however, uncertainty creates opportunity and I believe this opportunity has potential. Wizz Air Holdings PLC, founded in Geneva, Switzerland in 2003 formed of two separate brands: Wizz Air and Wizz tours. Wizz air provides short to medium haul flights to passengers with flight paths across the Middle East and Europe equating to approximately 600 routes across 44 countries. The airline currently functions with a fleet of 96 aircraft; comprising of Airbus A320 and A321, thus remaining unaffected by the recent grounding of the Boeing 737 jets. Whilst Wizz Tours functions as a tour provider.
When choosing between stocks much of the crux of the decision can be based on the numbers and Wizz Air Holdings has some promising figures to consider. Firstly, it has a strong balance sheet from which they have been reducing the level of debt versus’ their net worth, with total debt shrinking over the past 5 years from 45.9% to its current level of 2%. In addition, its current debt is more than sufficiently covered by its operating cash flow and low levels of unsold assets. This stock is also extremely undervalued when compared to its expected future cash flow £32.16 vs £102.15 that is a potential undervalue of 68.52%. Its earnings and revenue growth are also expected to exceed the UK market average, 19.8% vs 10.6% and 14.6% vs 7.5% respectively. Whilst to date posting a year on year positive earnings growth rate over the last 5 years. The company’s net income is expected by 17 analysts to grow by approximately 63.9% by March 2021 so potentially promising growth over the next two years. As well as the factors mentioned, Wizz Air holdings also has 5 strong buy and 6 buy broker ratings resulting in an average rating of buy which shows this stock has strong analyst sentiment towards buy.
This figure illustrates the broker rating provided by IG.com, showing 5 Strong Buy, 6 Buy and 6 Hold broker ratings. At the time of writing there are 0 sell ratings.
Net Income, Total Equity and Cash from Operating Activities charts for Wizz Air Holding PLC – Provided by IG.com
Things to consider…
Some analysts might highlight its current P/E ratio of 10.3x which is slightly higher than the average ratio within the airline industry of 8.17x. Although the ratio is higher than the industry average, optimism should still remain over this stock due to the aforementioned reasons above. In addition, a high P/E ratio can imply higher future growth which is also indicated by the other data presented. Reinvestment into new assets and services is a possibility due to €1.1 billion of net cash (as of December 2018) and relatively low levels of debt. Overall opening the possibility of high levels of growth in the future bringing down the overall P/E ratio; potentially leading to bullish momentum in its share price. One concerning factor is the recent selling of shares by key figures within the organisation, such as the CEO. However, this could be a result of the company not paying dividends to its shareholders, hence wanting to take some cash out of the company or his stock options maturing. The decision to not pay dividends could be in order to reinvest earnings hence accelerating growth, once again adding to the picture of a future high growth stock. Finally, due to the company only becoming publicly listed in 2015 there is not much indication of technical key levels, which can only be established with time. However, since selling off towards the end of 2018 the stock has recovered well, posting higher highs and higher lows since October 2018 with a nice bounce off the recent trendline as illustrated in the chart below.
Daily chart displaying Wizz Air Holding PLC from IG.com
The potential impact of Brexit?
With the planned Brexit date fast approaching there is still uncertainty around what a post Brexit Britain will look like. The future of both British and EU aerospace depends on what type of deal is agreed, if any. In the case of a ‘No Deal’ Brexit, the aviation industry could be severely impacted due to the potential of new regulations and restrictions for travel being imposed between citizens of Britain and the EU, potentially having an adverse effect on passenger numbers. In addition, this could lead to further issues such as aerospace ownership and a potential threat to security. In the event of a ‘Deal’ its impact will be determined by the terms of that ‘Deal’ and eventually the effects will be seen with time. However, with no clear result in sight, all you can do is speculate or wait until the picture is clearer.
Wizz Air Holdings PLC, an extremely interesting stock, appearing to be in a healthy financial position indicated by their balance sheet with very low levels of debt in comparison to its operating cash flow. It is arguably undervalued with regards to the current market capitalisation versus’ its future cash flows. In addition, to having €1.1 billion net cash which could be reinvested in the future, potentially paving the way for future high overall growth and a higher share price.
Thank you for reading, let me know your thoughts
Sources: www.SimplyWallStreet.com, www.IG.com
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