Macquarie Airports (MAP) listed 2002, is the world’s second biggest airport operator, with interests in airports in Sydney (55.8%), Brussels (52.0%), Copenhagen (53.4%), Rome (34.2%), Birmingham (15.5%), and Bristol (32.1%). MAP is managed through Macquarie Airports Management (part of Macquarie Bank which owns 17.5% of MAP) for an annual base fee of $13.75M plus 1% of MAP’s market capitalisation over $1 billion, and 20% of MAP’s excess return benchmarked against the MSCI World Transportation Index expressed in $A.
MAP’s customers are the airlines, and airline passengers which use the airport facilities, stores, and car parking. Aerospace traffic is dependent on incoming and outgoing travel demands, and is affected by global economic conditions, investment flows, and tourism. MAP’s airports operate relative monopolies over their regions and as a result have limited competitors. Sydney Airport accounts for 41% of MAP’s total airport assets, whilst Brussels Airport accounts for 21% and Copenhagen Airport accounts for 20%.
MAP released a 1H06 result reporting total revenue down 27.1% to $605.6M, but NPAT up 29.5% from $157.3M to $203.7M. The six months saw a focus on the integration of the Brussels and Copenhagen airports, and strong cost management. Asset backing was at $3.56 per stapled MAP security. Management reaffirmed dividend guidance of 25cps unfranked for FY06, and anticipate profit growth of between 9 – 10% for the full year. The current 25cps dividend represents an attractive yield of 7.3% unfranked, but is above the long term sustainable dividend identified by management of 16cps, and yield of 4.7%.
MAP’s hold a portfolio of utility assets which generate strong cash flows and underpin an attractive dividend yield. The company’s future growth is underpinned by excess capacity at its airports, and the ability for the company to increase tariffs, and generate revenues from alternative sources, such as retail, food and beverage, and car parking offerings. In these areas the company has been successful, but a key risk is any regulation of Sydney Airport due to customer dissatisfaction, which could lead to curbing of the company’s ability to set tariffs. Other risks include rising oil prices which reduce air traffic as airline operating costs and / or ticket prices rise, and negative shocks to tourism such as terrorism and global conflicts.
Despite the risks, the outlook for MAP is positive, given the strong demand for air travel in a global market which has spurred the establishment of numerous discount airlines such as Jetstar, Ryanair, Virgin Express, easyJet, and Virgin Blue. The company’s airports have been experiencing strong growth in traffic, with moving annual total traffic to October 2006 increasing 7.7% at Sydney, 5.4% at Copenhagen, 3.1% at Brussels, 6.7% at Rome, and 11.3% at Bristol. Birmingham airport experienced at 1.4% fall in traffic. The company’s diversified income initiatives, and strong cost management are also positive growth drivers.
MAP last featured as Stock of the Week on 23 January 2004 when its stock was trading at $1.89. The stock price subsequently climbed steadily to levels as high as $3.50 in early 2005 representing a 12 month return of 85%. MAP shares traded in a sideways fashion between $3.00 and $3.50 throughout 2005 and 2006. MAP shares currently trade $3.41 and a PE ratio of 14.6 for FY06 which suggests significant value given the company’s strong cash flows, attractive dividend yield and solid growth outlook. Ecinya recommends a buy up to $3.75, however, entry points and Ecinya recommendations change as new information appears, and our Portfolio Menus should be consulted on an ongoing basis.
MAP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
