UK share markets continue to climb as dreams of a magic bullet to cure the Covid-19 crisis have swelled. The FTSE 100 has surged to new five-month highs, north of 6,400 points, after news of Moderna’s successful vaccine tests filtered through. We could well be on the cusp of a new bull market.
It’s still too early to say the path to a V-shaped economic recovery has been cleared. Still, I believe buying shares in Wizz Air (LSE: WIZZ) could be an excellent way to play the global economic upturn, whenever that finally happens.
A UK share on my ISA radar
Plenty of European airlines have gone to the wall as Covid-19 restrictions severely damaged air travel. But this Hungarian giant has no worries on this front. It has one of the strongest balance sheets in the business. Morgan Stanley reckons this UK share has almost a full year’s worth of liquidity (10.3 months’ worth, to be precise), even if its planes were to be fully grounded.
I’ve been a fan of Wizz Air for a long time. I like its flexible operating model that provides terrific investor security during crises like now. I’m encouraged by its considerable exposure to the fast-growing emerging markets of Europe. And I’m excited by the rate at which the low-cost air travel market is rising. According to Statista, cheaper carriers like Wizz Air doubled their market share between 2006 and 2019 to a whopping 31%.
I’m confident budget operators should continue gaining their share in the short-to-medium-term too. A recovery in the global economy will, of course, boost budgets for holidays and business trips. But weaker consumer spending power compared to before the crisis, and massive economic uncertainty, will see travellers switch down to wallet-friendly operators like this. Wizz Air will benefit from reduced competition in this fast-growing travel segment too.
And Wizz Air can also expect to keep building its market share over the longer term, once the Covid-19 crisis passes and it resurrects its ambitious expansion programme. The UK share added 98 new routes in the last fiscal year (to March) to solidify its commanding position across Central and Eastern Europe. It added new stations in Poland, Ukraine and Russia as well.
Taking to the skies
Unsurprisingly, Wizz Air is expected to endure shocking profit problems this year. City brokers reckon the airline will record annual losses of 2.1 euros per share in fiscal 2021. However, expectations of improving trading conditions for the following year means earnings of 2 euros per share are predicted. And this leaves the UK share trading on a forward price-to-earnings (P/E) ratio of 24.5 times.
Sure, this doesn’t make Wizz Air cheap on paper. But it’s a premium worth paying, given the airline’s exceptional balance sheet strength and outstanding growth prospects. In my opinion, Wizz Air is one of the safest yet most exciting ways to play the new bull market.
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Royston Wild 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 2020