Wizz Air PLC (LON: WIZZ) is the only low cost airline that JPMorgan appreciates even from afar after a review of European players.
The broker has significantly reduced its current year forecast for Wizz Air, Ryanair Holdings PLC (LON: RYA) and easyJet PLC (LON: EZJ), reflecting ongoing travel restrictions in Europe and higher fuel costs and carbon.
The drops in its forecast for next year are more modest, thanks to the rollout of vaccinations across continental Europe, where the pace has picked up in the past three weeks.
The broker believes all three carriers will regain profits in 2022.
JPMorgan (JPM) describes its recommendation to “overweight” Wizz Air as “going against the grain” like eight other brokers who are hedging the share price as a “sell”.
“This surprises us for a number of reasons. (1) WIZZ has a strong balance sheet with good liquidity. (2) It has arguably the best multi-year growth history in the industry. (3) With an ultra-low cost base, we expect WIZZ to return to the top of its target net profit margin (13-15%) in the coming years. (4) Trade liquidity has improved following the recent placement of Indigo; the free float now represents 61% of the number of fully diluted shares and 91% of ordinary shares, ”said JPM.
In contrast, easyJet only has two “sell” ratings among the analyst community while Ryanair only has one; JPM is neutral on both.
For easyJet, JPM is forecasting a pre-tax loss of £ 1.31 billion for the year through the end of September, having previously forecast a loss of £ 914 million.
EasyJet is the most suited of the three low cost carriers with the likely reopening of travel to Europe later this summer, JPM says.
Despite lower earnings expectations, its easyJet price target, based on earnings multiples enjoyed by its peers, drops from 710p to 845p.
Ryanair is now expected to post a net loss of 138 million euros for the year ended March 2002, compared to JPM’s previous forecast of a profit of 146 million euros.
“On January 19th of this year we moved RYA from OW [overweight] to Neutral, arguing that RYA’s restrictions on shareholders (after the Brexit transition ended on December 31, 2020) were too severe and would limit demand for stocks, especially from UK investors, ”JPM said .
“We believe these restrictions, at least in part, explain RYA’s underperformance in 2021 YTD [year-to-date]. Moreover, over the next 12 months at least, we are skeptical that the EU will change its policy and allow UK investors to be treated as ‘eligible nationals’ for the purpose of holding shares in companies. European airlines. We believe the restrictions RYA has placed on its actions will continue to be a barrier to their performance, ”said JPMorgan.