Broker tips: Wizz Air, Aston Martin
Analysts at Berenberg cut their target price on low-cost European carrier Wizz Air on Thursday based on fuel and currency headwinds.
Berenberg said that, in its view, Wizz Air's current share price already factored in a sizeable cut to its full-year guidance. With shares down 19% over the past month, a decline "even worse than easyJet and Ryanair", the broker feels the airline's current share price discounts "a reduction in guidance of c20%".
"We believe the market has extrapolated Ryanair and easyJet's company-specific challenges; we find such weakness unlikely at Wizz," said Berenberg.
The broker stated that Wizz had avoided tough comparable periods on one-time pricing benefits, as experienced by easyJet, and booking weakness due to strike disruptions, which has affected Ryanair's yield outlook.
Noting that concerns about a profit warning had likely held back would-be buyers, the German broker said that this fear offered a "considerable upside for investors" as it reiterated its 'buy' rating on Wizz.
Berenberg's principal reason for dropping its target price on the airline from 4,000p to 3,800p was its move of marking fuel and currencies to market.
The broker expects an incremental increase to fuel costs of roughly €16m throughout 2019, leading it to cut its full-year EBITDAR estimates by 2.5% and to lower its DCF-led price target to 3,800p.
"On higher fuel costs, we now assume more disciplined growth to protect high margins."
Jefferies initiated coverage on the shares of newly-listed automaker Aston Martin on Thursday with an 'underperform' rating and a target price of 1,400p per share, noting that as the iconic British firm's IPO did not include any primary capital, selling shareholders may have missed a chance to start a relationship with public equity markets "on the right foot".
The broker said that, although Aston Martin had seen a difficult start to life on the market, its credible investment case and strong management team meant that, in Jefferies view, few stocks in its coverage would deliver a stronger earnings progression.
However, Jefferies noted that the combination of high pricing, secondary-only transactions and a short six-months lockup may, "understandably, keep long-only investors on the sidelines".
Jefferies' analysts also felt that Aston Martin's balance sheet didn't quite balance. Despite shareholders voicing concerns around leverage ahead of the group's IPO, Jefferies said Aston Martin was "yet to provide the liquidity buffer one might expect from a company that is effectively using customer deposits to fund working capital."
On a more positive note, the broker said a luxury manufacturer like Aston Martin was capable of structurally delivering "exceptional returns on invested capital" of more than 50% after tax, putting it ahead of the likes of Hermes and Ferrari.