Grupo Aeroportuario del Centro Norte: [NDQ:OMAB]
March 22, 2009: $6.91 /share
52-week range: $6.41 (Mar. 3, 2009) - $24.18 (Apr. 7, 2008)
Dividend: varies with US$ - Mexican Peso exchange rates
Full year 2008 = $0.68 /share, First half 2009 = $0.326 already declared.
Grupo Aeroportuario operates 13 airports in Central and Northern Mexico as local state awarded monopolies. These facilities were privatized in 1998 and OMAB thus avoided all initial airport construction costs (while agreeing to pay for any future capital expenses that may arise). The company generates about 80% of its revenues through per-passenger, take-off and landing fees with the remainder coming from parking fees, retail royalties and other concessions. In some regions they also own contiguous land that might be profitably developed in the future.
Some of OMAB’s most prominent airports serve Monterrey, Mexico’s third largest city, as well as popular tourist areas like Mazatlan and Acapulco. 80% of OMAB’s traffic is from domestic flights. Their route between Monterrey and Mexico City is the most highly travelled route in all of Mexico. Commercial competition is banned by the government and OMAB is commissioned to operate all their current airports through 2048.
The company is completely debt free. As of their last report they held $26.3 million $US.
Many of the world’s most profitable airports generate up to 30% of their sales through non-aviation functions leaving room for increased profit margins from the non-regulated side of their businesses (with only 20% of current OMAB revenues).
While OMAB shares have only traded in the United States since late 2006 they have been publically traded in Mexico years longer. Long term passenger growth had been averaging 10% per year and overall revenue growth had shown 12% annual gains since 2003.
In 2008 domestic traffic decreased by 1.1% while international traffic dropped by 5.8% Despite that, aeronautical revenues grew by 4.3% and total sales increased 4.8% (with non-aeronautical revenues up 6.8%).
As part of their strategy to increase non-aviation revenues the company took a stake in Consorcio Grupo Hotelero that will develop and operate a terminal-based hotel at the Mexico City International Airport.
The primary driver of revenues is clearly dominated by the level of passenger traffic throughout their facilities. The weak economic climate has dampened growth in this area and the shares of OMAB have declined by more than 71% from last April's high of $24.18 to today’s $6.91 quote.
I believe that the already marked down share price more than discounts the (hopefully) temporary easing of the growth rate in air travelers.
Grupo Aeroportuario had operating earnings of $0.79 /share ($US) in 2008 and is expected to show EPS of $0.74 and $0.85 for 2009 and 2010 in today’s depressed travel market. That makes OMAB’s forward P/E a quite low 9.33x on 2009 consensus numbers and under 8.2x the 2010 estimate.
With no debt and hefty free cash flow generation, the dividend looks safe. If the annual rate remains the same in the second half, the 2009 dividend will come in at $0.72 /share for a current yield of 10.4% on today’s price (before foreign tax withholding).
Morningstar believes that OMAB can increase its operating margins over the coming five years and likes these shares for total return. Their overall rating comes in at 4 stars (on a 1 – 5 scale with 5 stars being best). They figure ‘fair value’ at $11.00 or 59% above last week’s closing price of $6.91/share.
This looks like an opportune time to invest in a growth stock with a large, government mandated economic moat at a non-growth valuation. As always, if you wait for all the news to be good you won’t be able to buy at today’s share price. OMAB has traded at $20 - $30 for most of the past three years leaving plenty of upside from under $7. The solid balance sheet and hefty dividend make waiting for “takeoff” quite acceptable.
Disclosure: Author is long OMAB shares.
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