The United States has approximately 20,000 airports with only one in Branson, Missouri, that is privately run. Many other countries have privatized many of their airports including Mexico, Australia, India and Spain. Two Mexican airport operators trade on the New York Stock Exchange while a third is listed on the Nasdaq. It seems odd in a nation that rails against regulation, that there's absolutely no private ownership. Interested investors can buy the stock of one or more of these companies. We'll decide which is the best investment.
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Grupo Aeroportuario del Centro Norte (Nasdaq:OMAB)
The smallest of the three airport operators, it holds a 50-year concession through 2048 to operate 13 airports and one hotel in 10 states in the central-north area of Mexico. I'm most familiar with the Acapulco and Zihuatanejo airports, which I've traveled through on past vacations. In 2011, its passenger traffic increased 1.6% to 11.8 million people. Owned in part by a consortium that includes ICA, Mexico's leading construction and infrastructure company, as well as the people who own the Paris airport, the public's 41% interest is in good hands.
Management's biggest task since taking control of these airports was to improve the passenger experience and diversify revenues. In the fourth quarter of 2011, it increased revenues by 20.2% and adjusted EBITDA by 50.7%. In the fourth quarter, aeronautical revenue accounted for 76.3% of the total with the remainder from advertising, restaurants and various other sources. In 2011, it refurbished 26 restaurants and commercial facilities and opened 23 new retail stores and food and beverage concessions. Constantly improving its airports, Mazatlan's been awarded the best regional airport under two million passengers in Latin America and the Caribbean. Its revenue in U.S. dollars in 2011 was $200 million with a net margin of 22%. In the first quarter, traffic increased by 7.6%, leading to a 20% increase in revenues and a 28.6% increase in adjusted EBITDA. Its dividend yield averages about 4% annually. However, in late May it made a special dividend payment of 69 cents a share, which means the yield in 2012 will be upwards of 7%. With a strong management team in place, I see no reason why its stock can't keep up the pace it has set for itself in the first half of the year.
Grupo Aeroportuario del Pacifico (NYSE:PAC)
It operates 12 airports in the Pacific region of Mexico including the resort towns of Los Cabos, Puerto Vallarta and Manzanillo. However, 73% of its passengers tend to be visiting its other airports like Guadalajara, which is its busiest by far with almost 7 million passengers in 2011. Guadalajara, Los Cabos and Puerto Vallarta accounted for 76% of its revenues last year, which was $354 million with an EBITDA of $185 million and an EBITDA margin of 66.3%, 210 basis points higher than Grupo Aeroportuario del Sureste and much higher than Grupo Aeroportuario del Centro Norte at 50.8%. In recent news, its May passenger traffic increased 2.6%, 20 basis points higher than Grupo Aeroportuario del Centro Norte, but 180 basis points less than Grupo Aeroportuario del Sureste. This difference in passenger traffic will most likely influence my decision about the best stock. Nonetheless, it's an excellent competitor to the other two.
Grupo Aeroportuario del Sureste (NYSE:ASR)
It operates nine airports in the Southeast part of Mexico including Cancun and Cozumel. It began operations in November 1998 and now serves between 15 and 17 million passengers per year. Since 1990 its passenger traffic has grown at a compound annual growth rate of 5.6%. Between 2005 and 2010, its revenues and EBITDA increased at a compound annual growth rate of 15.5 and 11.2% respectively. Its Cancun airport serves the most international passengers in Latin America and is the second-largest airport in Mexico behind Mexico City. In 2011, Cancun experienced a 4.7% increase in passengers to 13 million, serving more international passengers than domestic, unlike its two peers.
Since 2006, it is the only airport operator of the three to grow passenger traffic on a consistent basis. Its mix of revenue between regulated and non-regulated is much more balanced at 69 and 31% respectively. In 2011, it generated approximately $15.77 per passenger with Cancun responsible for 79.3% of its total revenue of $328 million. Its EBITDA after capital expenditures is $123 million and its EBITDA margin is 64.2%. In May it paid a dividend of $2.61 a share for a current yield of 3.6%. Over the past five years it's easily outperformed its two peers as well as the S&P 500, delivering an annual total return of 9.4%. Given its profitability, I see no reason why it won't continue.
The Bottom Line
The weakest of the three operators is Grupo Aeroportuario del Centro Norte, although that's not saying much because it too appears to have a solid business. For me, the choice comes down to consistency and execution. In a close call, I believe Grupo Aeroportuario del Sureste is the best investment of the three. For those not comfortable betting on just one infrastructure company, take a look at the iShares S&P Emerging Markets Infrastructure Index Fund (Nasdaq:EMIF), which holds Grupo Aeroportuario del Sureste in its top 10 as well as Grupo Aeroportuario del Pacifico among the 20 other holdings.
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.