DORA III Investments Will Expand Infrastructure And Passenger Volume In 2027

Key Takeaways

• Strong passenger traffic growth and new contracts in retail and food sectors are expected to drive revenue and improve margins.
  
• Strategic investments in infrastructure and rising commercial activity support long-term revenue growth and financial strength for shareholder returns.
  
• Rising operating expenses and CapEx investments pose risks to margins and earnings, compounded by uncertainties in energy costs, tariffs, and traffic projections.

Catalysts

Engages in the management of airports in Spain, Brazil, the United Kingdom, Mexico, and Colombia.

• Aena anticipates continued passenger traffic growth in 2025, expecting a 3.4% increase in the Spanish network and potentially higher growth in international assets. This could enhance revenue through increased passenger volume.
  
• The introduction of new contracts in specialty shops and food and beverage sectors is expected to increase minimum annual guaranteed rents by 45% and 50% respectively in 2025, which should improve revenue and possibly enhance net margins.
  
• Aena is planning for a significant CapEx cycle in preparation for the third DORA in 2027. This investment is projected to expand infrastructure capacity, which could drive future traffic growth and subsequently boost revenues.
  
• The commercial activity is expected to maintain robust growth, partly driven by increased spending per passenger and the introduction of new brands. This trend should continue to support revenue growth.
  
• The dividend policy reflects a proposed increase of 27.4% for the next fiscal year, which could imply financial strength and increasing future earnings that support shareholder returns.

Aena S.M.E Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aena S.M.E's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.4% today to 34.3% in 3 years time.
• Analysts expect earnings to reach €2.3 billion (and earnings per share of €15.0) by about March 2028, up from €1.9 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €2.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.4x on those 2028 earnings, up from 16.9x today. This future PE is greater than the current PE for the GB Infrastructure industry at 17.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.67%, as per the Simply Wall St company report.

Aena S.M.E Future Earnings Per Share Growth

Risks

• The expectation for significant CapEx investments during DORA III might lead to increased financial leverage, which could impact net earnings or limit dividend payments if not managed properly.
  
• Rising operating expenses, especially in areas such as security and staff costs due to inflationary pressures, could compress net margins if revenue growth does not outpace these increases.
  
• Uncertainty about energy costs in 2025, which may not yield the same savings experienced in 2024, poses a risk to maintaining current EBITDA margins.
  
• The ability to secure tariff increases beyond 2025 is unclear due to regulatory limitations, which could affect future revenue growth and profitability.
  
• Traffic projections, particularly involving Ryanair's potential reduction in regional flights, introduce uncertainty that could negatively impact revenue if other airlines do not fill the gap.

Valuation

• The analysts have a consensus price target of €215.948 for Aena S.M.E based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €248.0, and the most bearish reporting a price target of just €129.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.6 billion, earnings will come to €2.3 billion, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 10.7%.
• Given the current share price of €218.2, the analyst price target of €215.95 is 1.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.