16 New Routes And VIP Lounges Will Boost Monterrey Connectivity

Key Takeaways

• Increased seat capacity and new routes suggest strong future passenger traffic growth and potential revenue boost.
  
• Non-aeronautical revenue growth from VIP lounges and retail shows potential for higher margins and increased earnings.
  
• Cautious macroeconomic outlook and construction revenue decline may impact growth, while conservative traffic expectations could limit future revenue and earnings projections.

Catalysts

Grupo Aeroportuario del Centro Norte, S.A.B.

• The increase in seat capacity by 13.4% during the quarter, along with the introduction of 16 new routes, suggests strong future growth in passenger traffic, which is likely to boost revenue.
  
• The significant growth in non-aeronautical revenues by 20.9%, driven by VIP lounges, restaurants, and retail, indicates potential for further margin expansion and increased earnings due to higher spending per passenger.
  
• The expansion of commercial and industrial services, including new warehouse constructions and increased leased space, is expected to drive diversification revenues, positively impacting overall revenue streams and profitability.
  
• The strategic focus on international connectivity, particularly through Monterrey Airport, could enhance international passenger traffic, thereby increasing aeronautical revenues and providing additional growth opportunities.
  
• With VINCI's involvement, there is a significant opportunity for strategic enhancements and new partnerships in route development, which could lead to increased traffic and revenue synergies, thereby boosting future earnings.

Grupo Aeroportuario del Centro Norte. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Aeroportuario del Centro Norte. de's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.7% today to 37.9% in 3 years time.
• Analysts expect earnings to reach MX$7.6 billion (and earnings per share of MX$19.93) by about May 2028, up from MX$4.9 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 17.3x on those 2028 earnings, up from 16.4x today. This future PE is greater than the current PE for the US Infrastructure industry at 14.7x.
• 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 16.23%, as per the Simply Wall St company report.

Grupo Aeroportuario del Centro Norte. de Future Earnings Per Share Growth

Risks

• The company is cautious about macroeconomic uncertainties and the international news, impacting its expectations for future passenger traffic and subsequent revenue growth.
  
• The non-aeronautical revenue growth may stabilize after the recent jump, potentially affecting overall revenue increases from this segment if no new substantial developments occur soon.
  
• The decrease in construction revenues by 60% indicates a potential slow-down in major investment in the short term, impacting growth and expansion efforts that are crucial for future revenue.
  
• Capacity adjustments by low-cost carriers and high base comparison from the previous year may lead to conservative traffic growth expectations, which could adversely affect revenue and earnings projections.
  
• Monetization from the MDP (master development program) negotiations may not significantly benefit from traffic adjustments this year; minor impacts in traffic will have marginal benefits on future earnings projections.

Valuation

• The analysts have a consensus price target of MX$215.675 for Grupo Aeroportuario del Centro Norte. de 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$244.0, and the most bearish reporting a price target of just MX$180.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$20.0 billion, earnings will come to MX$7.6 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 16.2%.
  
• Given the current share price of MX$209.12, the analyst price target of MX$215.67 is 3.0% higher. 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.