The Wizz Air Holdings (LSE: WIZZ) share price slumped more than 25% when the market opened Thursday (5 June) and, as I write, it’s still hovering around that level.
The reason? A 61.7% fall in operating profit for the year ended 31 March, to €167.5m (£150m at current exchange rates). That was caused in large part by a number of its aircraft being grounded due to problems with their Pratt & Whitney GTF engines. At year-end, 42 planes were still stuck on the tarmac. Conflict in the Middle East and Ukraine also had an impact on profits.
The share price is now down close to 65% in the past five years.
Record traffic
The engine problem looks like it should be a one-off issue, even if it’s dragged on a bit. And the underlying demand for the airline seems solid enough, with a record 63.4 million passengers carried in the year, up 2.2%. That’s with an increased load factor of 91.2%, and led to a 3.8% rise in revenue for the year, to €5.27bn (£4.43bn).
The Budapest-based company, billing itself as “one of the most sustainable European airlines“, spoke of an anticipated return to growth in the current year. But the board’s not offering guidance at this time, due to “the lack of visibility across our trading seasons“.
It does see higher revenue in the 2026 year based on current bookings. And it expects to grow capacity by 20% over the full year.
Analysts expected a tough year this time, but forecasts suggest a price-to-earnings (P/E) ratio dropping as low as 5.4 by 2027. It would mean earnings per share doubling from the €1.78 diluted figure for 2025.
Continued low fuel prices should help. And if Wizz does get back to profit growth in the next couple of years as hoped, I could see the shares looking cheap now on headline valuation measures.
Rising debt
But net debt has been climbing in the past few years. And we just saw it rise another 3.5% to €4.96bn (£4.17bn). That’s more than three times the total Wizz Air market-cap. And it blows that cheap-looking P/E ratio out the window. Adjusting for debt would push the effective P/E to around 20 for the business itself.
Forecasts suggest net debt could start to fall after peaking in the current year. Liquidity did improve, with €1.74bn (£1.46bn) cash at year-end, up 9.3%. I don’t envisage a cash problem in the short-term. And many companies can make consistent profits based on heavy debt funding.
If Wizz Air can get back to its aggressive European expansion policy, I thnk it could be a major future force in the industry. And investors with an eye on recovery might do well to consider it.
But I rate the stock as one of the riskiest in a risky sector. It’s bargepole time for me.
