Terminal Upgrades In Mexico City And Cancun Will Improve Travel

Key Takeaways

• Lifting of capacity restrictions and infrastructure investments could boost passenger traffic and enhance margins, improving overall financial performance.
  
• Potential acquisitions and increased non-aeronautical revenues may diversify income and positively impact future earnings and shareholder returns.
  
• Declining Mexican traffic, higher operating costs, currency fluctuations, and capital expenditures may strain revenue and margins in the short term.

Catalysts

Grupo Aeroportuario del Sureste, S. A. B.

• Anticipated lifting of capacity restrictions at Mexico City Airport in the second half of 2025 could enhance domestic traffic, potentially increasing revenues and aiding margins due to higher passenger volumes.
  
• Continued growth in passenger traffic in Puerto Rico and Colombia, driven by favorable exchange rates and successful commercial strategies, may support top-line revenue expansion and contribute positively to net income margins.
  
• Strategic investments in infrastructure, including the expansion of Terminal 1 in Cancun Airport and enhancement of Terminal 2, are expected to streamline operations and boost commercial revenue, potentially enhancing overall margins.
  
• Increasing commercial space and revenue per passenger, especially in Colombia and Puerto Rico, supported by a favorable exchange rate, could drive higher non-aeronautical revenues, improving overall EBITDA margins.
  
• Consideration of potential acquisitions, such as airport assets formerly owned by CCR, may provide growth opportunities and diversify income sources, positively impacting future earnings and shareholder returns.

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 10.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 43.2% today to 38.4% in 3 years time.
• Analysts expect earnings to reach MX$16.1 billion (and earnings per share of MX$51.45) by about April 2028, up from MX$13.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as MX$18.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, up from 12.6x today. This future PE is greater than the current PE for the US Infrastructure industry at 14.4x.
• 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 15.94%, as per the Simply Wall St company report.

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

Risks

• Traffic in Mexico experienced a decline, impacted by factors such as Easter shift and the ramp-up of Tulum airport, potentially affecting future passenger volumes and thus revenue.
  
• Continued capacity limitations at Mexico City Airport and ongoing Pratt & Whitney engine restrictions could negatively impact domestic traffic and revenue generation.
  
• Higher operating costs, including an 18% year-on-year increase in total expenses due to higher minimum wages and administrative fees, could reduce profit margins and net earnings.
  
• The influence of currency exchange rates, particularly the depreciation of the Mexican peso, may lead to fluctuations in revenue and affect margins given the international exposure.
  
• The significant upcoming capital expenditures related to infrastructure modernization may strain capital allocation and temporarily pressure margins until the completion of projects and the realization of expected benefits.

Valuation

• The analysts have a consensus price target of MX$654.104 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$800.0, and the most bearish reporting a price target of just MX$559.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$42.0 billion, earnings will come to MX$16.1 billion, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 15.9%.
  
• Given the current share price of MX$567.11, the analyst price target of MX$654.1 is 13.3% 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.