Mexico's Airport Expansions Set To Increase Passenger Capacity By 2026

Key Takeaways

• Infrastructure investments and commercial expansions are expected to enhance capacity, potentially boosting long-term revenue and earnings.
  
• Normalization of passenger traffic and easing of flight restrictions could elevate revenue and support growth in key regions like Mexico and Colombia.
  
• Challenges from increased competition and operational costs, along with geopolitical pressures, could negatively impact future revenues and profit margins despite long-term growth projects.

Catalysts

Grupo Aeroportuario del Sureste, S. A. B.

• ASUR anticipates normalization of passenger traffic in key regions like Mexico and Tulum by 2026, which could positively impact future passenger traffic and revenue growth.
  
• Infrastructure investments, including the expansion of Terminal 1 at Cancun Airport and remodeling in Puerto Rico, aim to enhance passenger capacity and commercial opportunities, potentially boosting long-term revenue and earnings.
  
• Strong performance in Colombia, with continued recovery and newly opened commercial spaces, is expected to support further revenue and EBITDA growth as passenger traffic stabilizes and increases.
  
• The potential lift in flight restrictions at Mexico City Airport and resolution of Pratt & Whitney engine issues could alleviate current traffic constraints, improving passenger flow and airline capacity, which may subsequently elevate revenue.
  
• Expansion of commercial offerings across regions, like new commercial spaces in Colombia and Mexico, is enhancing non-aeronautical revenue, critical for improving net margins and overall earnings as these segments typically have higher profit margins.

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 10.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 43.2% today to 39.1% in 3 years time.
• Analysts expect earnings to reach MX$16.5 billion (and earnings per share of MX$52.21) by about March 2028, up from MX$13.6 billion today. The analysts are largely in agreement about this estimate.
• 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 12.7x 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 16.85%, as per the Simply Wall St company report.

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

Risks

• Passenger traffic in Mexico declined by 8% year-on-year, with both international and domestic traffic down in the high single digits due to capacity constraints and competition from the new Tulum Airport, potentially impacting future revenues negatively.
  
• The ongoing Pratt & Whitney engine restrictions are continuing to constrain airline operations, which affects ASUR's partner airlines, leading to weaker passenger traffic through their airports, possibly reducing earnings.
  
• Construction and expansion projects, such as the new terminals in Cancun and Oaxaca, while important for long-term growth, involve significant short-term capital expenditure, impacting net margins during the development phases.
  
• The Mexican government's mandate to increase concession fees by 80% and minimum wage by 20% in 2024 raised operational costs, affecting profit margins despite the offsetting reduction in technical assistance fees.
  
• International traffic declines from several key regions, including the U.S., Europe, and South America, could limit revenue growth if these trends persist, influenced by geopolitical factors and currency exchange movements.

Valuation

• The analysts have a consensus price target of MX$656.333 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$42.2 billion, earnings will come to MX$16.5 billion, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 16.8%.
• Given the current share price of MX$574.15, the analyst price target of MX$656.33 is 12.5% 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.