ANYYY - Aena: Expect A 60% EPS Increase By 2026

2023-04-22 11:35:00 ET

Summary

• Aena, with the Spanish government as majority owner, operates the most important commercial airports in Spain as well as London Luton.
• The company recently expanded into Colombia and Brazil.
• Aena wants to increase its revenue per passenger and passenger numbers by 2026 while obtaining a 55% EBITDA margin.
• This implies the EPS for 2026 will likely come in around 10-10.5 EUR per share, including an average cost of debt of 4%.

Introduction

Aena (ANNSF) (ANYYY) is the company operating commercial airports in Spain. It also has a majority stake in London Luton airport, owns 100% of the Northeast Brazil Airport Group, and has minority stakes (and one 50% stake) in airports in Mexico and Colombia. As in excess of 80% of the tourists going to Spain reaches the country by air, Aena is a good proxy for the tourism industry in Spain. The company is 51% owned by the Spanish government.

The main listing of Aena is on its home exchange in Madrid where it's trading with AEN as its ticker symbol. As the average daily volume in Spain is almost 150,000 shares , it clearly is the best exchange to trade in Aena's shares. Where applicable in this article, I always will refer to the main listing and I will use the EUR as base currency throughout this article.

Aena's website mainly contains download-only links, but you can find the annual report here and all other relevant documentation I'll be referring to on the investor page of the website .

2022 was the return of tourism

2022 was an excellent year compared to 2021 but that was a pretty low hurdle to jump over considering 2021 or at the very least the first half of 2021 was still heavily impacted by the fallout of the COVID-19 pandemic and the travel restrictions.

Looking at the 2022 traffic data, we see the total amount of passengers in Aena's Spanish network more than doubled to almost 244 million passengers while the total amount of passengers at Luton almost tripled.

This doesn't mean we are back at 2019 levels. As you can see in the image above, the total passenger count is still substantially lower than the 2019 levels. This also means the EBITDA and free cash flow as reported by Aena is also still lower than in 2019 and the company only expects to achieve the 2019 EBITDA levels again from next year on.

That being said, 2022 was a key year to see how fast the profitability of the company bounces back. And the answer is "very fast." As most of Aena's operating expenses are fixed in nature, the 1.75B EUR revenue increase was almost integrally added to the operating profit which increased from an operating loss of 706M EUR in 2021 to an operating profit of 1.28B EUR. That's a 1.98B EUR improvement, which is indeed higher than the revenue increase but keep in mind the 2021 results include an impairment charge while Aena was able to reverse some of those impairments in 2022.

This means the 2021 financial results were likely understating the underlying performance due to the impairment charges and we shouldn't zoom in too much on the 2022 vs. 2021 comparison but focus on the absolute result in 2022. The net income of 901.5M EUR resulted in an EPS of 6.01 EUR per share, which means Aena is currently trading at a P/E ratio of about 25. That's high, but keep in mind we aren't back at the pre-COVID levels yet.

As you may know, I mainly focus on the free cash flow performance of a company, and I obviously wanted to have a closer look at Aena's cash flow statement as well. The reported operating cash flow was 1.86B EUR but this includes a 93M EUR contribution from changes in the working capital position while the total amount of cash taxes paid was just 178M EUR although the income statement indicates Aena owed about 263M EUR in taxes over FY 2022.

That being said, we also should add the 26.7M EUR in dividends received from its unconsolidated stakes in other companies while we also should deduct the 10M EUR in lease payments (see below).

This means that on an adjusted basis, the operating cash flow was almost exactly 1.7B EUR. The total capex was 727M EUR, resulting in a free cash flow of just under 1B EUR and the net attributable free cash flow was likely around 975M EUR or 6.5 EUR per share.

A large portion of the capex is related to the acquisition of intangible assets. This is related to the activities in Brazil and will likely be a non-recurring item (or at least it will be recurring at a much lower rate as the average investment in intangibles in the past few years was substantially lower).

This means that if we would assume the average capex to be spent on intangibles is about 100M EUR per year, the underlying free cash flow result would have been even higher at close to 7 EUR per share.

The growth plans for 2026

As part of its growth plans and Strategic Plan for 2026, Aena has secured new concessions in Brazil where it was the winning bidder on the "Bloque de Once Aeropuertos" ("the block of eleven airports") which brings the total amount of airports operated by Aena in Brazil to 17. This also will unlock additional synergy benefits but will require some capex investments as part of the 30-year concession.

The company aims to increase the revenue per passenger in 2026 by approximately 12% compared to 2019, and the EBITDA margin should come in at around 55%.

Considering the total revenue in 2019 came in at 4.5B EUR, and assuming a 15% passenger increase (including the recently acquired concession in Brazil) the total revenue should increase to 5.8B EUR (including the anticipated 12% increase in the revenue per passenger) resulting in an anticipated EBITDA result of 3.2B EUR.

It's good to see Aena is focusing on a low leverage ratio. Right now, the company's cost of debt is exceptionally cheap. About 80% of its gross debt has a fixed interest rate with an average cost of 1.31%. This will obviously gradually increase as debt comes due. I don't anticipate any noticeable impact in 2023 but refinancing the 2024 debt at an increased interest rate of 4% will result in an increase of the interest expenses by approximately 100M EUR per year.

So while the company plans to see a very strong EBITDA increase, let's for sure keep in mind the elements below the EBITDA result (and more specific, the interest expenses) will likely gradually increase as well as about 65% of the debt will have to be refinanced before the end of 2026.

Investment thesis

That being said, the commitment of Aena to reduce the debt ratio to 2 by 2026 is very encouraging as it implies a healthy confidence level in the combination of an increasing EBITDA and slowly decreasing net debt.

Based on the company's rough guidance for 2026 including the implied EBITDA result of 3.2B EUR would result in an EBIT of 2.4B EUR and a profit before taxes of about 2.1B EUR assuming an average cost of debt of 4%. Applying a 25% corporate tax rate would result in a net income of 1.58B EUR or 10.5 EUR per share. If Aena maintains its dividend policy with a payout ratio of 80%, the dividend could very well exceed 8 EUR per share by the end of 2026.

This still doesn't make Aena cheap but the company would be a buy on any pullback. Just seven months ago the stock was trading back at COVID levels at just over 100 EUR per share which was an excellent opportunity. I currently have no position in Aena but I think I should go long again at the next opportunity.

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