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01 Jun 2020 | 18:04

BofA hikes target for Wizz Air, says low cost base is a 'key advantage'

(Sharecast News) - Analysts at Bank of America reiterated their 'buy' recommendation for shares of Wizz Air, predicting that its focus on Central and Eastern Europe, together with its competitive cost base, would see it benefit from smaller rivals' demise. Ancillary revenues made up roughly half its sales, underpinning its "strong" cash flows.

Not that its liquidity position wasn't already solid, standing at €1.3bn of cash at the end of December.

Furthermore, that low cost base and cost saving initiatives meant its monthly cash burn was running at about €35m per month.

"Wizz Air's cost base is the second-lowest behind Ryanair in our universe and is a major competitive advantage. It will continue to lower its costs base as it benefits from non-unionised staff, a favourable geographical niche, and a more efficient fleet. We expect unit cost (ex-fuel) to recover to pre-Covid 19 levels by FY22," BofA said.

Demand was expected to stay strong too, given how key European Economic Community markets remained "underpenetrated" and that the propensity to travel was still taking off, so that a full recovery was expected by 2022.

Like Ryanair, pricing would remain negative, but Bank of America was expecting passenger numbers to be 50% higher by 2025.

All told, BofA raised its valuation multiple for the shares from 13.1 times its estimated price-to-earnings for 2022 to 16.5.

In turn, that took its target price for the stock from 2,900.0p to 4,000.0p.
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