The airline industry is always at the mercy of events outside its control, such as fuel prices, terror attacks, bad weather, Brexit and wider economic sentiment.
Air Berlin, Alitalia, FlyBMI and Iceland’s WOW Air have come unstuck. But don’t be deterred, because this FTSE 250-listed British-based carrier, which only launched in 2009, is hitting new heights, and I’d buy it today.
Wizz Air Holdings
Low-cost central and eastern Europe-focused airline Wizz Air Holdings (LSE: WIZZ) has seen its share price soar by a hugely impressive 152% over the past three years.
But its share price is down around 2.5% this morning, even though the group has just posted 18% passenger growth and record profits of €372m, up 85.2% year-on-year, after strong summer trading in the first half.
Total revenue also increased 21.7% to €1.67bn, with ticket revenues up 11.4% to €956.6m. Ancillary revenue from those all-important flight extras rose at an even faster pace, up 38.8% to €714m.
Total costs did jump 21.1% to €1.3bn, so maybe that explains the surprisingly downbeat response to a largely impressive set of figures.
CEO József Váradi hailed higher load factors, expanding net profit margin, and industry leading growth rates, which more than offset higher fuel prices. Meanwhile, its “game-changing, attractively priced and financed A321 neo aircraft” should also widen its cost advantage over competitors.
The £2.7bn FTSE 250-listed group is slightly expensive, trading at 16.4 times earnings, but that seems justified by its healthy rate of expansion. Impressively, Wizz also reported total cash of €1.8bn at the end of September, of which €1,633.3m was free cash, giving it real solidity.
As there’s no dividend, this can go back into expanding the business, and second-half growth is expected to climb to 22%. Some reckon Wizz could even double your money. If so, today’s minor dip could be a buying opportunity.
Budget carrier easyJet (LSE: EZJ) is also listed in the FTSE 250, having fallen out of the FTSE 100 earlier this year. Investors have suffered a far bumpier ride here, with the share price trading 15% lower than five years ago. However, the worst now seems to be over, with the stock surging 28% in just three months.
The £5.15bn group has been boosted by the collapse of Thomas Cook, which allowed it to pick up slots at Gatwick and Bristol airports for £36m, and strikes by Ryanair and British Airways staff. Its recent Q4 statement showed passenger numbers up 8.6% with adjusted pre-tax profit at the upper end of guidance, between £420m and £430m.
However, a drop in the load factor, a key figure, by 1.4% to 91.5% is a blow. Today, Wizz showed how it should be done, posting a far more impressive load factor of 94.6%, up from 93.6%. I just hope easyJet can fill its planes in those new slots.
easyJet’s earnings are forecast fall 26% this year and, given all the headwinds, the share price looks a little pricey, trading at exactly 15 times forecast earnings. The forward yield is 3.5%, with cover of 1.9.
I think the group’s future will be brighter but, given current uncertainties, I’d hold off and pick this up in a market dip. I’d buy Wizz though.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019