The chief executive of Wizz Air has in the past stated that his budget carrier, based in eastern Europe but also well-known to travellers out of Luton airport, could be as big as Easyjet within five years (Robert Lea writes). It was a statement of bold ambition.
Before the lockdowns Wizz was carrying 40 million passengers a year, making it less than half the size of Easyjet which, if the pandemic hadn’t intervened, would have been handling 100 million a year.
Yet the Wizz comparison should be more with Ryanair. At the equivalent stage of Ryanair’s development, a decade and half ago, the Irish budget airline was expanding exponentially. Easyjet has become a much more mature airline, focusing on flying to primary airports and giving its customers a much better service, for a price, than a simple high-frequency budget flyer. Easyjet has not been chasing volume growth but better quality, more sustainable earnings.
Given the record of delivering on targets of Wizz’s founder and chief executive Jozsef Varadi, there is little reason to doubt his ambition.
Everything that Michael O’Leary, the boss of Ryanair, boasts about his own airline, which had been flying 150 million passengers a year making it the undisputed king of European short-haul, is as true for Wizz. In changing and challenged markets the best-funded, lowest cost operators win. And those with the newest, most fuel-efficient aircraft — Wizz flies state-of-the-art Airbus A320s and A321s — will win even bigger.
The Budapest-based, London-listed Wizz’s proposition is that it is now the disruptor that Ryanair once was. It has emerged out of an eastern European market that is becoming wealthier and more likely to travel. It is market leader in Hungary, Ukraine, Romania, Bulgaria and other Balkan states and in Poland is second only to Ryanair.
Wizz does well out of the friends-and-family segment of air travellers with the eastern European diaspora working around the continent and flying home on a regular basis.
Its data suggests it attracts a younger audience who as long as the fare is right — and Wizz is cheap at an average of €30 per fare — are more likely to want to be travelling when the pandemic recedes.
Yet the current trading is awful. The Christmas quarter reported on Thursday saw passenger numbers and revenues down by more than 75 per cent at 2.2 million and €150 million respectively and three months of losses at €114 million. And there is no prospect that trading in the current quarter will be any better. However, it is doing better than most. And, in any case, the stock market appears to be discounting the next few months and can only see the sunny uplands of a vaccinated, unquarantined Europe.
Its trading update was greeted with a 4.7 per cent rise in the shares to £44.02, taking them back to where they were before the pandemic outbreak and not far off the exuberant £48.84 touched last month before the latest wave of lockdowns.
It is just outside the FTSE 100 and valued at £3.5 billion, more than Easyjet. And there is the conundrum for investors. The shrewd know they should clean up when the pandemic recedes but have already popped Wizz in their baggage.
On the calculation of its broker, Barclays, for the 12 months to end of March 2022, Wizz is trading at 25 times earnings — though that reduces to a multiple of nine times for what is expected to be a fully recovered year to March 2023.
It recently shored up its balance sheet, tapping bond investors for €500 million, its cash balances stand at €1.2 billion and it is one of the few airlines in the world whose debt enjoys investment grade status.
Holders of Wizz should be happy that they are and, if they invested during previous share price weakness, may wish to topslice their holding and take some profit.
Advice Hold
Why This short-haul airline will come out of the pandemic in prime position and is an investment for the long-haul
Fevertree Drinks
When it emerged that Fevertree Drinks was due to issue a trading update on the same day as Diageo’s half-year results there was a frisson of excitement among City traders (Dominic Walsh writes). Was the oft-mooted takeover of the world’s leading mixers supplier by the world’s biggest spirits group finally about to happen?
Well, no, and it’s unlikely given the relationships Fevertree has forged with the likes of Jim Beam bourbon and Patrón tequila. It also works with Diageo and in recent days it has scored a marketing coup with the Aviation gin brand acquired by Diageo last year from a group of owners including Ryan Reynolds. The Hollywood actor remains involved and has been tweeting footage of himself making a G&T by mixing Aviation gin with Fevertree tonic. The cost? Not a brass bean.
Call it luck, if you like, but yesterday’s 2020 trading update suggests Fevertree is far from just reliant on luck. As the business has matured, its extraordinary growth record since flotation in 2013 has moderated but it remains a quality company. Its revenues in an unprecedented year fell by only 3 per cent to £252.1 million — ahead of the guidance provided in September. It beat that forecast despite providing it before further Covid restrictions were imposed.
The small decline was achieved despite a 22 per cent fall in the UK due to the closure of pubs, bars and restaurants. It mitigated this with strong growth in markets such as America, Canada and Australia as well as a 20 per cent jump in UK sales through shops and supermarkets that lifted its retail market share to 40.1 per cent, further ahead of Schweppes.
Tim Warrillow, the chief executive, says that when the pubs and restaurants reopen, its UK business will be in a stronger position than pre-Covid thanks to the broadening of its range of mixers. As it targets the dark spirits market, it has continued to expand its range of largely ginger-based mixers, while it has yet to properly market the range of sodas it launched last year.
Advice Buy
Why The shares should fizz once the pubs reopen
