Barclays upgrades Wizz Air, says Abu Dhabi exit is a 'strategic positive'

(Sharecast News) - Barclays upgraded Wizz Air on Thursday to 'equalweight' from 'underweight' and lifted the price target to 1,100p from 900p as it said the decision to exit Abu Dhabi was a "strategic positive". "We think it is a very positive move by Wizz to exit its Abu Dhabi operations," the bank said.

"We have been consistently sceptical of Wizz's Mid-east expansion, seeing Wizz disadvantaged in accessing key traffic rights."

It noted that the business has lost around €40m over the past two years and said it sees little hope of this improving, given regulatory constraints.

"The company also highlights geopolitical instability and the challenges of the hot harsh climate on engines," Barclays said.

"Whilst these were clearly relevant, we would be surprised if these challenges were unexpected.

"The move looks to us to be a welcome recognition of where Wizz can compete successfully (CEE) and where it has fewer strategic advantages."

Looking forward, Barclays said the key change that it would like to see from Wizz is a significant cut to its growth plans from around 20% per annum to single-digit growth rates.

The bank said it thinks that Wizz was driven to open the Abu Dhabi base specifically because it had more aircraft than it could sensibly deploy in its strategic strength market.

"If Wizz can reduce its growth plan to a modest single-digit growth rate, then we see it being able to leverage its strong market position in CEE successfully," it said.

"We also would like to see Wizz cancel its orders for the A321XLR aircraft, which is not in our view well suited for LCC operations. We expect flag carriers to successfully use this aircraft, with premium seating and some cargo revenues."

At 1240 BST, the shares were up 0.7% at 1,026p.