ANYYY - Seeking Alpha With Aena Stock

2023-11-29 10:36:29 ET

Summary

• Aena S.M.E., S.A.'s 9M 2023 results showed strong demand growth and value conversion, with traffic growing 17.4% year-over-year and revenues growing nearly 20%.
• The company's stock is difficult to value, but using the EV/EBITDA for the company median suggests a potential 19% upside with a $196.50 price target.
• Aena's portfolio, including the São Paulo-Congonhas airport, provides attractive opportunities for value creation, and the stock remains attractive for investment.

In a previous report , I analyzed Aena S.M.E., S.A. ( ANYYY , ANNSF ), which operates a total of 46 airports in Spain with international exposure via a majority stake in Luton Airport, a portfolio of Brazilian airport, and a recent addition of a second portfolio of Brazilian airports including São Paulo-Congonhas while the company indirectly owns part of Grupo Aeroportuario del Pacifico ((GAP)). I initially put a $183 price target for Aena, representing 21% upside. Since then, the stock has appreciated 13.6%, more than double the return of S&P 500 (SP500). In this report, I will be analyzing the 9M 2023 results presented in November and update my price target for Aena.

Aena Shows Strong Demand Growth Value Conversion

The results that Aena presented were strong. Traffic grew 17.4% year-over-year and exceeded pre-pandemic traffic by 0.8%. By geographical segmentation, the Spanish network is 1.3% above pre-pandemic while the Northeast Brazil Airport Group is nearly 5% higher than pre-pandemic. Luton is still 10% below pre-pandemic levels, being the outlier in the group results. On 17.4% traffic growth, revenues grew nearly 20% while operating expenses grew just 2% providing a very strong cost amortization. EBITDA grew 38.8% to €2.1 billion while EBIT of €1.5 billion marked a growth of 62.5% and pre-tax profit was even 75% higher.

So, across the board we saw strong cost control and continued strength in air travel demand, with the positive that international traffic in the Spanish airport portfolio is not yet fully recovered. This is particularly due to trailing numbers from the UK and Germany, which are the largest markets for the Spanish airport portfolio.

Overall, we saw a positive translation to profits, with profit growth outpacing revenue growth, which in turn outpaced volume growth.

What Is Aena Stock Worth?

Aena stock is quite difficult to value, as it is not quite clear whether the company trades two years ahead on the industry EV/EBITDA median or the EV/EBITDA for the company median. The former would imply slight overvaluation, while the latter would imply around 19% upside with a $196.50 price target. At this point, I am inclined to use the EV/EBITDA for the company median, as I noted that the company has a history of trading higher than peers and I think there is a good reason for that being the case.

Looking at the business, we see that from geographical perspective for tourism, having a Spanish airport portfolio is extremely attractive while the exposure to Brazil and the operations of São Paulo-Congonhas should provide big added benefits to the value creation. Since, the company’s portfolio has been enriched with the Congonhas airport, which should process nearly 25 million passengers in 2023 and 37.5 million in 2052. In comparison, in 2022 the airport group processed 243.7 million passengers. The current recovery rate would imply 286.1 million passengers excluding Congonhas, which would on an annualized basis provide an 8.7% boost to passenger volume at current standing.

Due to this significant addition as well as the pandemic impact on the alpha value, I have used the 1Y alpha value for Aena, which would translate to a buy rating for the stock.

Conclusion: Aena Stock Remains Attractive

The 9M results showed favorable revenue growth as compared to volumes, and favorable cost absorption and growth compared to revenue and volume growth. I believe Aena stock deserves its premium valuation compared to peers, and its 30-year concession to operate São Paul-Congonhas airport will be a big plus, which I think further cements the appeal for investment in Aena stock. As a result, I am increasing my price target for Aena from $183 to $196.50.

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