Wizz Air flies higher on RBC upgrade

Wizz Air flew higher as RBC Capital Markets initiated coverage of the Eastern European low-cost carrier at ‘outperform’ with a 2,100p price target.

The bank said Wizz offers cash generative growth a non-growth multiple. In addition, it pointed out that it has higher growth markets, with a cost base and scale few competitors match.

RBC said there are few shares offering scope for more than 10% earnings per share compound annual growth rate, free cash flow yield rising to more than 10% and over 30% return on equity in 2017.

The bank pointed out that Wizz routes mostly link Central and Eastern Europe states to each other and Western Europe.

“CEE GDP per head is around 30% lower than in Western Europe, but growing faster. Lower GDP/head translates into a faster rising propensity to fly and market growth at higher GDP multipliers than Western Europe.

“Wizz Air enjoys ex-Fuel cost/available seat kilometres close to Ryanair combined with rising scale of operation and consumer relevance. At this life-stage, we think Wizz is running ahead of a usual low cost carrier profit growth trajectory – with more to come.”

RBC said that many local competitors are still country-focused and often capital-constrained. This sets the scene for further low cost carrier share expansion.

“We do not see just one CEE winner but a likely small set of winners because of the already concentrated markets. We believe Wizz will be one of these.”

At 1015 BST, Wizz shares were up 3.5% to 1,530p.