By Mihir Gupta and Karan Pathak (University College London)
Stock Name: Wizz Air Holdings Plc.
Ticker: FTSE250: WIZZ
CMP: GBP 34.50 (as on 12-09-2020)
Target: GBP 36.00 - 36.50
Timeline: 1 - 2 weeks
Wizz Air is a leading low-cost airline in Central and Eastern Europe. Its fleet of 121 Airbuses consists of the A320-200, A320neo, A321-200, A321neo, and A330-200, with an average age of around 5 years each to maintain efficiency.
The airline operates 710 routes across 155 destinations in 45 countries, with the help of over 4500 employees.
The impact of COVID-19 is quite stark in the airline industry. The following numbers relate to the 3 months to June 2020:
Wizz Air saw 707,184 passengers carried, compared to 10,368,850 during the same period in 2019 - a fall of 93.2%.
Revenues fell 86.9% to €90.8m - underlying EBITDA fell by 95.2%
Net profits fell €107.4m in FY21Q1 compared to a rise of €72.4m in 2019
The fall in revenues was partially offset by a fall in Operating Expenses of 67%, driven mainly by a fall in fuel costs as well as airport handling costs - naturally since flights have been grounded
Cash balances were at €1.25bn, plus €0.33bn (£0.3m) from the Bank of England’s Covid Corporate Financing Facility
At the end of June, Wizz Air was operating at around 70% of its capacity - rising to 80% as of September.
It is worth mentioning that CEO Jozsef Varadi, when commenting on the results, said that net losses were €56.7m - this is, in the writer’s opinion, misleading to shareholders. This amount excludes the impact of losses arising from COVID-19 and thus does not show an accurate representation of the company’s earnings over the 3 months. This does not reflect well on the corporate governance of the company.
The outbreak of the COVID-19 pandemic may be very good for the Low-Cost Carrier (LCC) segment of the Airline industry. With falling incomes and rising unemployment, the affordability of legacy airlines may decline, opening up more of the market to LCCs. Their low-cost business model, leading to low ticket prices, can be just what people need when repressed demand for quick holiday experiences is released on the other side of the pandemic.
Index: FTSE 250 (11,527 as on 10/09/2020)
Graph 1: Trend analysis for FTSE 250 with crucial support as well as resistance levels (Investing.com as on 10/09/2020)
As on 10-09-2020, FTSE 250 closed at 17,573 after having dropped 20.98 points since the opening of the trading day. Despite having broken the rising wedge once, the index was driven by a bullish rally with strong volumes up till 4th June, 2020. However, ever since the index broke the rising wedge for the second time, the index has produced a parallel channel of movement and has been unable to break out from it. As per our analysis, the index has been consolidating on its immediate support between 17,530 - 17, 580 and the immediate resistance for the index is at 18,140 (as shown by the yellow rectangles in Figure 1.1).
Based on historical analysis of the index, some of the other crucial levels other than the immediate support and resistance are 17,020 - 16,810 on the downside and 18,280-18,450 on the up-side respectively (as shown by the orange rectangles in Figure 1.1).
Graph 2: Fibonacci Levels for the FTSE 250 (Investing.com as on 10/09/2020)
These levels are further backed by our Fibonacci Level analysis, as shown in Graph 2. After having broken its 0.618 retracement level with strong volumes, the index retested this level due to immediate profit booking. From that point onwards, although the index has tested its 0.786 level twice, we believe that the bears have made it particularly tough for the last line of defence on the upside to be broken. This point may further be supported by the decreasing buying volumes that are being observed, ever since the index entered its consolidation stage.
Graph 3: 200-50 day Moving Average Analysis for FTSE 250 (Investing.com as on 10/09/2020)
Moving on, although the Index remains below its 200-day MA as shown in Graph 3 (implying a bearish trend ), the decreasing gap between the 200-day and 50-day MA brings with it hopes of witnessing a positive movement on the up-side in the index. As the index nears a ‘Golden Crossover’, our advice would be to look out for the level of volume the crossover emerges at. Reason being that if the crossover occurs with good buying volumes, that would be a particularly strong signal for the bulls to be taking charge of the market.
Technical Outlook for the Stock
Graph 4: Support and Resistance analysis for Wizz Air (Investing.com as on 12/09/2020)
Support and Resistance Analysis
Wizz Air Holdings’ stock price closed at GBP 34.50 after having lost GBP 0.42 at the end of the trading day on 11th September 2020. As shown in Graph 5, the stock price for Wizz Air has been dwindling on an extremely crucial support level of GBP 34.50 (as highlighted by the blue rectangle). The strength of this level is further highlighted by the price action around this level. Particularly so, this level was tested at least six times in the form of a resistance, before it eventually broke out of it on 11th August 2020. However, immediate profit booking resulted in the level being retested before it went on to make a high at GBP 39.20 on 28th August 2020.
Provided that the stock has had a bearish trend for the past week, if the current support is to be broken then the next crucial level where we expect the price action to be tested is it’s previous support of GBP 31.60 (as highlighted by the orange rectangle on the downside). However, if a trend-reversal was to occur then as per our analysis, the immediate resistance at the moment is at GBP 35.70 and GBP 37.20 respectively (as highlighted by the yellow rectangles on the upside respectively). Furthermore, even if these levels were to be broken with convincing volumes and price-action, then investors on the long side can aim to scalp up till GBP 39.00 (as highlighted by the orange rectangle on the upside).
Graph 5: Fibonacci Levels for Wizz Air (Investing.com as on 12/09/2020)
Finally, these levels also seem to be particularly strong from a Fibonnaci perspective (as can be seen in Graph 5). While on the upside it is the 0.786 retracement level, on the downside it is the 0.618 retracement level. What is evident from the historical analysis of these levels is that it would require a convincing level of volume for a decisive level of action to come on either end.
Graph 6: Ascending Triangle and Bearish H&S Pattern Formation ( Investing.com as on 12/09/2020)
As per our pattern analysis, we believe that there has been a distinct ascending triangle in the making ever since 13th March 2020 from which the price movement is yet to break out. However, what makes analysis of this stock particularly interesting is the Head and Shoulders pattern that has been in the making since 10th August 2020.
The catch remains in the fact that the right shoulder for the H&S pattern to be successful is yet to be made (as shown in Graph 6). Moreover, because bulls have historically entered the market at the time of support-testing, we are of the short term belief that this stock is going to gain at least GBP 3.00. This belief is further supported by the fact that by the time the right shoulder is formed, the price movement would have also approached the vertex of the ascending triangle (as can be seen Graph 6), thereby making it increasingly likely for the bulls to take over and obstruct the H&S break down to occur. Hence, we advise you to hold the stock now, and enter the short side in a week's time unless the current support is convincingly broken.
Moving Average Analysis
Graph 8: 20-5 day MA (Blue - 20, Red - 5) for Wizz Air (Investing.com as on 12/09/2020)
20 Day - 5 Day MA Analysis
If we look at the 20-day MA alongside the 5-day MA for Wizz Air, we can see that only very recently, on 7th September 2020 there was a negative crossover (i.e. the 5-day MA overtaking the 20-day MA) formed between the two with selling volumes above the 20-day volume average. It is this combination of factors that can collectively account for the downward push in price by approximately GBP 220.
Graph 9: 21-8 day EMA (Blue - 21, Red - 8) for Wizz Air (Investing.com as on 12/09/2020)
21 Day - 8 Day EMA Analysis
These observations can be further supported by the creation of a very recent negative crossover of the 21-Day and 8-Day Exponential Moving Averages (i.e. the 8-Day EMA overtaking the 21-Day EMA) on 10th September 2020 which was coupled with strong selling volumes. As can be seen in Graph 9 , the price movement has been particularly sticky to its 8-Day EMA. On the other hand, historically it has been testing and bouncing back from the 21-day EMA.
Although, both the negative crossovers of the respective Moving-Average and Exponential Moving Average lines would in a usual scenario indicate a bearish outlook for the stock, we have our reasons to wait for a strong signal of trend continuation (in case of the continuous downside to continue) or trend reversal (in case of the bulls taking charge of the stock). Following our reasons to back this line of argument:
As per historic observations, although there have been multiple negative crossovers of the 20-day and the 5-day Moving Average - none of them have sustained and managed to break the support. The same has been the case with the 21-day and 8-day EMA.
What furthers the doubt is the continuous formation of dojis before and after the crossovers. Dojis, as part of price action patterns, usually signify uncertainty and the desire of traders to garner a particular direction for the stock price movement. Given that the doji has been formed at the immediate support, this furthers the case of our recommendation to hold the stock and wait for the next 3-4 days of price action.
Graph 10: 200-50 day MA (Blue - 200, Red - 50) for Wizz Air (Investing.com as on 12/09/2020)
200 Day - 50 Day MA Analysis
As highlighted in our previous report, both the 200-Day MA and the 50-day MA are very reliable indicators to understand whether or not the general medium to long-term outlook for the stock is bullish or bearish taking into account the historic movement of the prices. Additionally, a crossover between the two is commonly referred to as the ‘Golden Crossover’ due to its reliability as an indicator of long-term trends.
Only very recently Wizz Air witnessed a “Golden Crossover” occur on (). As expected, the stock did gain for two consecutive days before correcting. Resultantly in our opinion, although the price movement is at a critical stage and may witness a considerable downside, we still believe that there may be a last scalping opportunity left on the buy side in which this crossover may help in paying the due benefit.
Graph 11: Stochastic and RSI of Wizz Air (Investing.com as on 12/09/2020)
Stochastic and RSI Analysis
The first indicator in Graph 11 is the Relative Strength Index (RSI) of Wizz Air for a 14-day period. The support formed at the 44.8 level has been a particularly strong support which remains unbroken ever since the stock entered its periods of consolidation.
The second indicator shown Graph 11 is the stochastic oscillator. The blue line is the stochastic line and the red line is the 3-Day MA. As it can be seen, the movement of the stochastic is further testimony to our recommendation to hold. Reason being that it has fallen below the 20 bound level - signifying the stock to have been oversold. Resultantly, we do believe that there is going to come some buying pressure which has also been the case when the stochastic has gone below the 20 bound level previously.
News Event Box
On August 19, 2020 Wizz Airlines announced a massive expansion plan for the Lithuainian market. It added one more new Airbus 320 to its Vilnius base, allowing the airlines to start 5 different flight routes from Vilnius to Birmingham, Liverpool Hamburg, Stockholm and Trondheim.
On August 14, 2020 Wizz Airlines announced a massive expansion plan for the Latvian market. It added one more new Airbus 320 to its Riga base, allowing the airlines to start 7 different flight routes from Riga to Birmingham, Billund, Hamburg, Reykjavik, Stockholm, Skavsta and Trondheim. It would also open a route from Tallinn to Bergen.
On August 13, 2020 Wizz Airlines UK announced its expansion plan to open a second UK base at the Doncaster Sheffield Airport alongside London Luton. The airlines decided to allocate one Airbus 320 to the Yorkshire airport and add seven more routes to its Doncaster Sheffield network.
Wizz Air has also recently established its presence in Abu Dhabi, with flights set to start in October. It has created a network of flights between the gulf state and countries such as Georgia, Ukraine, Egypt, Greece, Cyprus and Armenia.