Flying High With Mexican Monopolies:Grupo Aeroportuario del Pacífico, Grupo Aeroportuario del Sureste, Grupo Aeroportuario del Centro North
A few years ago the government of Mexico sold off many of its airports to be run as private companies. Most of these companies have 100 year leases on the properties. Before you move on, I'm not talking about airlines, but the actual airports themselves. There are many positives from the deepening economy, but the pluses are to die for in a healthy economy.
-Because you don't get much of a choice in airports, they are basically the only game in town. No need to worry about a competitor opening next door, because since these are semi-government sponsored, the government would likely block any competing airports, if there even were any proposed to begin with.
-They are one of the best types of businesses a business can be, a toll road. These airports collect a commission for every flight, every day. That means a steady stream of income virtually at all times.
-They don't rely as heavily on energy prices or planes being full. Many of the problems that plague airlines have nothing to do with airports themselves.
-Most of these airports offer huge dividend yields because of their huge free cash flow. Not only will you be able to collect those, but capital appreciation will be huge once the economy returns.
The Three Candidates:
Grupo Aeroportuario del Pacífico (PAC):
The largest Mexican airport, with a market cap of $1 billion, they engage in the operation, management, and development of airport facilities in the Pacific and central regions of Mexico. Owning 12 airports total, PAC has a profit margin of over 40% and over $100 million in cash. PAC shouldn't have any trouble getting through this recession and coming out stronger than before. PAC's $1.85 dividend yields almost 11%.
Grupo Aeroportuario del Sureste (ASR):
The slightly smaller ASR serves the southeast region of Mexico, operating nine airports. They have about a 30% profit margin and are about 20% off their 52 week low of $24.55. Standing at $30.60, ASR's $1.39 dividend yields over 6.5%.
Grupo Aeroportuario del Centro North (OMAB):
Although it operates 13 airports, OMAB is the smallest of the three with a $355 million market cap. OMAB's dividend yields a healthy 8.7%, but that is coupled with a -$0.22 EPS last quarter. OMAB is definitely the most beaten down of the three, but with good reason. On paper, their profit margins and cash cushion are smaller, but I think OMAB may have the best chance at surviving this recession most easily. Their airports are mainly in metropolitan and business areas that are less likely to see dwindling traffic volume when compared to tourist airports. Only three out of the 13 airports they run are tourist locations.
All three of these companies face significant challenges in the near future, but I think they qualify as outstanding long-term investments. Monopolies are good, but when they are actually sanctioned by the government, well, that makes them great.
Disclosure: I hold no positions in any security mentioned in this article.