2007 | 2008 | ||||||
Price: | 51.00 | EPS | |||||
Shares Out. (in M): | 0 | P/E | |||||
Market Cap (in $M): | 1,560 | P/FCF | |||||
Net Debt (in $M): | 0 | EBIT | 0 | 0 | |||
TEV (in $M): | 0 | TEV/EBIT |
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Grupo Aeroportuario Del Sureste (ASR: $51): 22% forecast 2007 EBITDA growth.
All numbers are expressed in US dollars.
Revenue generated in 2006: $207.301 million.
EBITDA generated in 2006: $121.98 million
Revenue forecast in 2007: $245.5 million.
EBITDA forecast for 2007: $149 million.
2006 EV/EBITDA ratio: 12.64X
2007 EV/EBITDA ratio forecast: 9.9X
2008 EV/EBITDA forecast: 8.5X
Investors seeking an investment with clearly defined near term growth prospects would do well to consider Aeroportuario Del Sureste (ASR). ASR manages 9 airports in Mexico, including Cancun International Airport.
I envision a rapid increase ASR’s 2007-2009 revenues due to growth in the highly profitable international passenger market at the
The catalyst which should drive above average near term growth will come from the opening of the new
http://www.asur.com.mx/asur/t3/index_en.html
Terminal #3 has the ability to double the total number of international travelers passing through the
The opening of terminal #3 will drive revenues and increase efficiencies as follows.
Akin to shopping malls, airports typically receive both a fixed rent, and a percentage of total sales, from retail space. The retail and boarding areas at terminal 3 should add over 150,000 square feet of additional space.
2. Capacity bottlenecks, which have impacted commercial revenues at the Cancun airport, will be alleviated.
Both domestic and international passengers have endured check in and security waits of up to 3 hours for many flights at this airport. The delays in processing passengers have resulted in many passengers being unable to shop, in efforts to catch their flights.
I can personally attest (being a frequent traveler to Mexico) that in the last year, the lineups to check in at Cancun, often run outside of the actual terminal building, during peak periods. Once this time consuming check in process has been completed (up to 2 hours), an equally long security screening line up takes place.
Most international airlines recommend that passengers check in two hours prior to boarding. However, at the
As a result of the long check in and security screening lines, passengers find themselves unable to shop at a leisurely pace (or at all). This must have greatly impacted the commercial revenues for 2006. My anecdotal comments seem to have shown up on the bottom line, as evidence by the information contained within the past years’ financial results. Consider the following information:
Prior to 2005, commercial revenues per passenger were growing at a five year rate in excess of 15% per annum. In 2005, commercial revenue per passenger averaged $3.53.
For the full fiscal year ending 2006, commercial revenues per passenger averaged $3.56 per person. However, revenue included a one time advance payment on terminal #3 retail space of $1.77 million, which equaled $.128 per passenger. Absent this fee, commercial revenues per passenger averaged $3.43 for 2006.
For the first quarter of 2007, commercial revenues fell further, to an average of $3.23 per person. This represented the high season of winter travel, when capacity constraints were most pronounced.
It appears that total commercial revenues have declined (year over year) by about 9.3%, or $.30 per passenger, throughout the entire ASR system. As the
More commercial space was opened up at the
Once the capacity constraints have been addressed, international passengers should have considerably more leisure time at the airport.
More shopping time could result in commercial revenue growth of at least $.45 per passenger in 2007 + incremental growth, in line with historical retail trends experienced at the airport. To be conservative, I assume that this incremental amount could be 5%. This is 1/3 of the five year growth rate demonstrated from 2000-2005.
With the ability to easily accommodate a 15% traffic increase at
3. International passenger traffic should increase sharply. In the past year, most flights deplaned/embarked on aprons, well away from the airport. Passengers and luggage were boarded onto buses, and transported to the actual terminal. This is by far and away, the most inefficient and time consuming way to operate a terminal. While domestic travelers don’t object to deplaning on aprons, international travellors (many who are senior citizens and not terribly ambulatory) find this objectionable.
A total of 11 new gates at terminal #3 are now open. These gates will permit the fast transfer of passengers and luggage directly into the terminal, greatly improving traffic flow. The current costs of bussing passengers, luggage and freight from the aprons to the terminal will also be reduced/eliminated.
The new terminal combined with commercial revenue increases, and growth from other airports, should produce robust revenue comparisons.
I calculated that during 2006, international passengers generated approximately 52% more revenues per person than domestic passengers. Overall, terminal 3 should prove greatly accretive to ASR’s top and bottom lines in 2007 and beyond.
For 2006, the average net revenue earned per passenger at the
The revenue earned from the 8 other airports (ex
Overall, a 2 million passenger increase at the
Airport traffic at the 8 other airports operated by ASR have also shown steady traffic increases for 2007. At the end of April 2007, the passenger count for the 8 other airports was up by 153,000 passengers vs. the same period ending April 2006.
Through the end of 2007, it seems quite plausible to estimate ASR total passenger counts of 16 million. This implies a slowdown from the growth rate experienced year to date.
For 2007, I forecast regulated/aeronautical revenues of $185.9 million. Over and above this, I estimate commercial revenues in the range of $55 million-$64 million.
In aggregate, total revenues could be $245 million. If EBITDA margins remain at the 58.8% rate earned in 2006, this would suggest 2007 EBITDA of $144.6 million.
The efficiencies that should be generated from the new terminal, coupled with increased EBITDA contributions from improved utilization at the 8 other airports, could result in the EBITDA margin meeting or surpassing the 62.6% level achieved in 2004. Given the potential increase in international passengers, I feel confident that record EBITDA margins are in store.
EBITDA margins at the 62.6% level suggests forecast EBITDA of $153.3 million for 2007.
The midpoint EBITDA estimates for 2007 suggests that $149 million can be achieved.
My preliminary forecast suggests that 2008 revenues may rise to $270 million, and EBITDA could rise to $170 million.
A blockbuster airport concession awaits in Playa Del Carmen.
The Mexican government has decided to issue a public tender, for the right to build and operate an international airport in the area of Playa Del Carmen. Situated south of Cancun, and in close proximity to the fast growing tourist area known as the “Mayan Riviera” this airport would be as large (or larger) than the Cancun International Airport. This will be a first class airport, build to handle international tourists, built at third world prices. I estimate that the airport will take a minimum of 5 years to be completed, and will cost no less than $600-$700 million.
The tender should attract bids from the three publicly traded
ASR shares, which traditionally sold for parity or a premium to PAC, have not performed as well as PAC over the past year. This is because of investor fears that PAC or OMAB might win the contract to build the Playa Del Carmen airport. If a competitor was awarded this concession, it could serve to draw off traffic from the
I speculate that ASR will be awarded this concession. This belief is based upon the recent decision of the CEO of ASR to increase his holdings in the company to over 52%, via a tender offer.
I do not consider the timing of Mr. Pardo’s tender offer, in light of the completion of the
In the event that ASR is awarded such a concession, the $600-$700 million could be funded via internally generated cash flow over the next 5 years, coupled with approximately $200 million of bank debts.
What could the fair market value for ASR shares be in 2008?
PAC sells for 14.8x trailing 2006 EV/EBITDA, and has historically generated a higher EBITDA margin than ASR, which justifies the premium price. I estimate that PAC is selling for approximately 12.5X EV/EBITDA, and 11X 2008 EV/EBITDA.
OMAB sells for roughly 15X trailing 2006 EV/EBITDA, and has historically generated a lower EBITDA margin than ASR. I estimate that OMAB is selling for approximately 13X 2007 EV/EBITDA, and 12X 2008 est. EV/EBITDA.
In the past, ASR has historically traded at a rough parity with the valuations afforded to
A smooth ramp up of the new terminal 3 revenues, coupled with continued growth from the other holiday destination airports (Huatulco and
Conclusion
The build out of major resorts in both
The website is here
http://www.asur.com.mx/asur/index.asp
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