The trading landscape is extremely tough for Europe’s airline industry right now because of the toxic combination of intense competition and rising fuel costs.
It’s not just the small regional operators that are suffering. Flybmi, Germania, Cobalt and Primera are just a few of those that have either put out distress calls or gone to the wall in the past few months alone. And it’s more than likely that many more will ground operations before the year comes to an end.
So what does this mean for the likes of Wizz Air Holdings (LSE: WIZZ)? City analysts are expecting the Hungarian airline to nurse a 43% earnings fall in the year to March. But low fares and increased costs are not the only thing battering the flyer’s short-term outlook, as the impact of Brexit, as well as worsening economic conditions across Europe, looms large on the horizon.
A perfect opportunity
Despite these woes, however, the FTSE 250 firm continues to trade on a healthy forward P/E ratio of 16.2 times. Not even news of a near-90% profits dive between October and December (to €1.7m) — caused by operating expenses surging more than a quarter year-on-year to €513m — has dented investor appetite for Wizz Air and its share price continues to rise.
The most immediate consideration for share pickers in the present climate is the tremendous amount of cash that the business has on its books, making it one of the financially-strongest players in a sector beset with collapses. As of December, it had €1.1bn of free cash, up 12% on an annual basis, and putting it in a solid position to ride out the current turbulence.
Rather, its bulked-up balance sheet gives Wizz Air the opportunity to capitalise on the agony that many of its rivals are experiencing, as illustrated by its takeover of Monarch’s take-off and landing slots at London Luton airport in late 2017.
Emerging markets star
So Wizz Air may be exposed to some more near-term profits troubles, but it remains one of the brightest growth stocks on Britain’s second-tier share index, in my opinion.
The company’s main operating territory of Central and Eastern Europe provides gigantic revenue opportunities in the years ahead as broader economic growth takes off there. And through its ongoing route expansion strategy Wizz Air is looking to really capitalise on this trend (it brought online 53 new routes in the last quarter alone to take the group total to 600, and opened its 26th base at Krakow in Poland too).
City brokers largely agree with my optimistic take and they are predicting that the business will bounce back with ripping profits growth of 24% in fiscal 2020, before reporting a chubby 23% bottom-line rise in the following year.
Wizz Air moved a staggering 8.1m passengers in the last quarter, up almost 15% on an annual basis, and I’m tipping demand for its tickets to keep getting stronger and stronger.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.