Expanding Air Travel And Monterrey Upgrade Will Fuel Aviation Progress

Key Takeaways

• Expansion and upgrade of key airport infrastructure positions the company for long-term revenue growth and improved margins.
  
• Rising passenger volumes and successful ancillary revenue strategies drive steady earnings and support sustainable cash flow growth.
  
• Heavy dependence on Monterrey Airport and a small group of airlines, combined with regulatory, leadership, and growth uncertainties, create elevated earnings and operational risk.

Catalysts

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

• Robust growth in passenger throughput-driven by increases in domestic and international routes (especially from Monterrey) and strong regional economic activity-suggests ongoing volume expansion that will contribute to higher aeronautical and commercial revenues.
  
• The company's strategic focus on expanding and upgrading airport infrastructure (notably the large investment into Monterrey Airport for terminal and capacity enhancements) positions it to capture future passenger and cargo growth, supporting sustainable operating leverage and improved net margins.
  
• Continued increase in commercial revenue per passenger, underpinned by expansion of retail, food & beverage, VIP lounges, and parking, reflects a successful strategy to maximize ancillary revenue opportunities and boost overall earnings.
  
• OMA is capitalizing on Mexico's growing middle class and rising disposable incomes, which underpin long-term demand for both domestic and international air travel, supporting steady topline and cash flow growth prospects.
  
• Ongoing industrialization and urbanization in northern and central Mexico are driving business and cargo traffic, with strong occupancy in industrial parks and high regional economic activity further supporting sustained revenue growth and profitability.

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 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.9% today to 40.3% in 3 years time.
• Analysts expect earnings to reach MX$8.5 billion (and earnings per share of MX$21.54) by about August 2028, up from MX$5.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$7.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 18.8x today. This future PE is greater than the current PE for the US Infrastructure industry at 16.4x.
• 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 16.13%, as per the Simply Wall St company report.

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

Risks

• Approximately 49% of committed future investments are concentrated in Monterrey Airport, making Grupo Aeroportuario del Centro Norte financially exposed to regional economic downturns, operational disruptions, or aerospace industry changes specific to this key hub, which could lead to volatility in future revenues and earnings.
  
• The upcoming master development program negotiation with the Mexican Federal Civil Aviation Agency introduces regulatory risk regarding maximum tariff approvals; if approved tariff increases remain limited to low single digits in real terms, they may not fully offset inflation or future cost increases, which could pressure long-term net margins and restrict earnings growth.
  
• The executive leadership changes-including the retirement and replacement of the Chief Operating Officer and Chief Commercial Officer-create medium-term execution risk in realizing commercial and operational strategies, potentially disrupting momentum in ancillary revenue growth and overall profitability if integration is not managed effectively.
  
• Significant reliance on a few major airlines, with VivaAerobus representing 51% and Volaris 24% of total traffic, exposes the company to customer concentration risk; any reduction in capacity or operational issues by these airlines would directly impact passenger throughput, thereby negatively affecting both aeronautical and non-aeronautical revenues.
  
• Despite current passenger growth, management is already anticipating capacity reductions and "tougher comps" in the coming quarters, indicating that the growth trajectory may slow and become less predictable, which could dampen revenue growth, affect EBITDA expansion, and lead to subdued investor sentiment regarding future earnings potential.

Valuation

• The analysts have a consensus price target of MX$245.25 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$289.0, and the most bearish reporting a price target of just MX$200.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$21.1 billion, earnings will come to MX$8.5 billion, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 16.1%.
• Given the current share price of MX$251.91, the analyst price target of MX$245.25 is 2.7% 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.