Airport Modernization And Latin Expansion Will Improve Air Connectivity

Key Takeaways

• Expansion into Puerto Rico and Colombia diversifies operations and strengthens growth prospects beyond the domestic market.
  
• Strategic investments in infrastructure and commercial revenue streams drive resilience and position the company for long-term growth.
  
• Intensifying airport competition, operating cost inflation, FX volatility, and weak non-aero revenue growth threaten margin stability and recovery prospects for ASUR.

Catalysts

Grupo Aeroportuario del Sureste, S. A. B.

• Passenger traffic in Mexico is expected to stabilize and return to growth in 2025 as the headwinds from aircraft groundings and the ramp-up of Tulum Airport normalize, leading to renewed volume and revenue growth.
  
• Ongoing expansion into Puerto Rico and Colombia is driving robust double-digit revenue and EBITDA growth in these regions, diversifying the business and reducing dependence on the Mexican market, which should bolster consolidated earnings and growth prospects.
  
• Investments in new commercial spaces and a focus on enhancing non-aeronautical revenue streams are resulting in strong per passenger commercial revenue growth, particularly in Colombia and Puerto Rico, supporting net margin expansion and earnings resilience.
  
• Ongoing airport modernization and expansion projects, such as the reconstruction of Cancun Terminal 1, are expected to increase capacity and improve passenger experience, positioning the company to benefit from long-term increases in regional air traffic and driving future top-line growth.
  
• Strong balance sheet and cash position, along with prudent capital allocation (including excess cash deployment and dividends), provide flexibility for further infrastructure investment or potential inorganic growth, supporting future revenue and earnings expansion.

Grupo Aeroportuario del Sureste S. A. B. de C. V Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Aeroportuario del Sureste S. A. B. de C. V's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.6% today to 38.5% in 3 years time.
• Analysts expect earnings to reach MX$16.8 billion (and earnings per share of MX$53.72) by about August 2028, up from MX$12.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$12.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, up from 14.5x today. This future PE is greater than the current PE for the US Infrastructure industry at 16.5x.
• 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 16.11%, as per the Simply Wall St company report.

Grupo Aeroportuario del Sureste S. A. B. de C. V Future Earnings Per Share Growth

Risks

• Continued declines in international passenger traffic in Mexico, particularly from key markets like the US, Canada, Europe, and South America, could indicate a structural weakening in demand or increased regional competition, potentially leading to lower revenues and reduced earnings growth.
  
• The ramp-up of the rival Tulum Airport is drawing significant traffic away from Cancun (ASUR's largest asset), with management conceding that this cannibalization will persist at least until Tulum reaches its expected passenger volume-delaying or diminishing recovery in consolidated passenger numbers and impacting both revenue and net margins.
  
• Rising operating costs, notably driven by substantial increases in Mexico's minimum wage and persistent expense growth across all markets, have caused margin contraction; if these trends continue, ASUR's net margins and profitability could remain pressured over the long term.
  
• Earnings remain increasingly vulnerable to foreign exchange fluctuations, as the company saw a significant FX loss this quarter due to peso appreciation, which directly eroded the bottom line and could make future profitability volatile due to FX exposure on both revenue and large USD cash holdings.
  
• Sustained soft non-aeronautical revenue growth in Mexico, complicated by ongoing construction disruptions (e.g., closure/renovation of Cancun's Terminal 2 through at least the next four quarters), could hamper commercial income and overall EBITDA during a period when non-aero revenues are key to margin resilience.

Valuation

• The analysts have a consensus price target of MX$672.536 for Grupo Aeroportuario del Sureste S. A. B. de C. V 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 MX$753.0, and the most bearish reporting a price target of just MX$587.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$43.7 billion, earnings will come to MX$16.8 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 16.1%.
• Given the current share price of MX$601.93, the analyst price target of MX$672.54 is 10.5% higher.
• 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.