During 2017, the share price of UK-based airline company Wizz Air Holdings (LSE: WIZZ) shot up around 133%, smashing the performance of the FTSE 250 index, which rose around 15% over the same period. I reckon most investors would have been pleased with the performance of WIZZ in their portfolios.
However, the share price has fallen almost 30% in 2018 and we could be seeing better value and a second chance to hop aboard the Wizz Air growth story. The company operates a fleet of 104 Airbus A320 and Airbus A321 aircraft over 600 routes from 25 bases with the service connecting 142 destinations across 44 countries in Central and Eastern Europe. The business model relies on offering very low ticket prices, but the budget airline is profitable and growing fast.
The growth proposition remains on course
I find the figures in today’s half-year report encouraging. Compared to the equivalent period last year, the number of passengers carried rose 20%, which suggests that the growth proposition is still on course. The increased business led to revenue rising 20%, but the firm faced some challenges regarding costs in the period, which led to net profit rising just 1.2%. The diluted earnings per share figure came in 0.3% higher and was affected by an increased share-count.
I think there are good reasons for the slowdown in profit growth and the easing off of the share price. Chief executive József Váradi explained in the report that the operating environment in the first half of the year was “particularly challenging” for all European airlines with “unprecedented” disruptions caused by striking air traffic controllers and slot constraints at “heavily congested” airports. On top of that, the company was coping with the ramp-up of its new UK airline, Wizz Air UK, and an “extensive” delivery program of 17 aircraft over 17 weeks. He reckons operations “are now back on track” and the key performance indicators for October and November are ahead of last year.
Short-term challenges?
Rising fuel prices were also a challenge in the period. But Váradi thinks the company’s “ultra-low-cost” business model provides a “significant competitive advantage” in an environment of higher fuel prices. He reckons an ongoing focus on costs will help the firm capture even more market share. So far, the plan has been working well with Wizz Air’s passenger numbers rising in most recent reporting periods. And he thinks an improving operational performance and falling costs will help to offset around half the €80m fuel headwind and disruption costs for the year. But the company has lowered its full-year net profit guidance to between €270m and €300m, suggesting a result similar to the previous year rather than the annual earnings advances we’ve become used to.
I think we could be seeing a classic case of short-term challenges affecting the profit growth and share price in an otherwise robust growth story. It expects to take ownership of what Mr Váradi describes as “game-changing, well-priced” A321 NEO aircraft into its fleet during the fourth quarter, “financed at very attractive levels,” which should “enable Wizz Air to increase its cost advantage even further.” I think there’s a lot more to come for investors with this one and believe the stock is well worth your attention now.
