PAC - Aena: Attractive Growth Under The Brazilian And Spanish Sun

2023-09-29 12:12:55 ET

Summary

• Aena S.M.E., S.A. manages 46 airports in Spain, including popular tourist destinations, and has international exposure in Brazil and the UK.
• Airports generate revenue through aeronautical and non-aeronautical sources, benefiting from increased flight schedules and passenger spending.
• Aena's H1 revenues increased by 24.1%, driven by traffic growth, and the company has various growth drivers and expansion plans, making its stock attractive with a 21% upside potential.

In a previous report, I analyzed the prospects of Grupo Aeroportuario del Pacífico ( PAC ) (“GAP”). In this report, I will be analyzing the prospects of a company that indirectly owns part of GAP, namely Aena S.M.E., S.A. (ANYYY, ANNSF). I will briefly discuss which airports are in Aena’s portfolio, how airports make money, and what the prospects for Aena stock are.

Which Airports Does Aena Operate?

Aena manages 46 airports and two heliports in Spain, which is the company’s core business - and it is quite a strong one given that the company manages airports in locations with high tourist appeal such as Tenerife, La Palma, Malaga, Palma de Mallorca, Valencia, Barcelona and Madrid. The company has a majority stake in Luton ((UK)), and it also won the tender for managing 11 airports in Brazil in 2022 including Congonhas (São Paulo) adding to its Brazilian airport portfolio while Aeropuertos Mexicanos del Pacífico owns 15% of the total shares of GAP. Aena has a 33.4% share in AMP via its International AENA arm.

How Do Airports Make Money?

So, how do airports make money? The revenue stream consists of two parts: the first one is aeronautics revenues that include landing and departure fees, passenger charges, terminal space rentals, security and aircraft parking; the second stream is non-aeronautical revenues which include things like car parking, car rental, ground transportation, retail, food and beverages and fast track.

So, there are two revenue streams that are well-suited to capitalize on the travel rebound. On the one hand, we have airlines increasing their flight schedules again, which benefits the airline via aeronautical revenues. On the other hand, the passengers are returning to the terminal halls, and they have money to spend, which benefits the commercial revenues which form a big portion of the non-aeronautical revenues.

So, for an airport to make money, you have to appeal to airlines providing smooth operations and offer travelers a unique experience.

More Growth Ahead for Aena

The most recent figures show that H1 revenues increased 24.1% driven by traffic growth of 22.8% while costs grew only 4.9% resulting in EBITDA growing nearly 50% to €1.17 billion. The results are strong and partially supported by improved minimum rent guarantees, which increase rent by 16.3%. For 2024, there are also various growth drivers such as a 4% higher adjusted maximum revenue per passenger and from November onwards, the 11 airports for which Aena won the concession will be added to the portfolio.

There are, of course, also risks. One slight pressure Aena is facing is that airlines are actively managing their yield, and at high load factors this means airlines are sending fewer but fuller airplanes. With a shortage of crews and airplanes, that is, of course, also to be expected.

Is Aena Stock A Buy?

Using the evoX Financial Analytics monitor, I crunched the numbers for Aena. While the company does not provide upside compared to the industry median EV-EBITDA, I do believe that the higher multiple that Aena tends to trade on is justified given its expansion in Brazil and the monopoly on the Spanish airports benefiting from Spanish tourism and continued recovery in business travel. As a result, I do feel comfortable putting a $183 price target on Aena stock, providing 21% upside, which is lower than the 30% upside Wall Street analysts see for the stock.

Conclusion: Aena Stock Has Upside

I believe that Aena deserves to trade at a premium, given its expansion in Brazil and the virtual monopoly in Spain. The results are strong, and we have seen minimum rent guarantees trend up strongly, while there is modest growth to be expected in the maximum adjusted revenue per passenger. In my view, this positions Aena attractively for the future as it executes its long-term plans, and I mark the shares a buy with 21% upside.

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