On Wednesday, Deutsche Bank adjusted its outlook on Wizz Air Holdings (WIZZ:LN) (OTC: WZZAF), reducing the price target to GBP16.50 from GBP17.50, while maintaining a Hold rating on the stock. This change comes as the firm anticipates challenges for the airline to meet its financial targets for the fiscal year 2025.
Deutsche Bank noted that for Wizz Air to reach the lower end of its profit guidance of €350 million for FY25, it would need to report a net profit of approximately €40 million in the second half of the fiscal year 2025. This requirement stands in stark contrast to the €35 million net loss reported in the same period of the previous year. The bank forecasts a net loss of €48 million for Wizz Air in the second half of FY25.
The analyst from Deutsche Bank acknowledged that while Wizz Air's revenue per available seat kilometer (RASK) is expected to increase by 12% year-over-year in the second half of FY25, which would align with the company's guidance of a mid-single-digit rise for the full year, it is the cost side that raises concerns. In the first quarter of FY25, non-fuel costs excluding 'net other' and depreciation and amortization (D&A) went up by 16% year-over-year, with a risk of a similar increase in the second quarter.
Despite assuming improvements in the second half of FY25 due to non-recurring maintenance costs, resolution of staffing inefficiencies, and better-managed airport charges, Deutsche Bank still sees a risk that Wizz Air's non-fuel unit costs could exceed its guidance of a high-single-digit increase for FY25. The bank's forecast for the airline's full-year post-tax earnings has been reduced by 6% from €280 million to €263 million, which is 14% below the consensus of €307 million.
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