New International Routes And Monterrey Expansion Will Boost Future Passenger Traffic

Key Takeaways

• Strategic commercial initiatives and new international routes enhance future revenue growth and boost net margins through increased passenger traffic and record-high commercial revenues.
  
• Expansion at Monterrey Airport and OMA Cargo growth position the company for higher earnings, driven by increased capacity, operational efficiency, and industrial park demand.
  
• Operational challenges and macroeconomic volatility could constrain revenue growth and impact profitability due to capacity issues, currency depreciation, and increased costs.

Catalysts

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

• OMA has launched new international routes from its airports, significantly increasing its international passenger traffic, which can enhance future revenue growth.
  
• Strategic initiatives in the commercial sector, such as contract renegotiations and new brand openings, have driven commercial revenues to a record high, potentially boosting net margins.
  
• Expansion projects at Monterrey Airport increase capacity, positioning it as a leading hub, which could drive future earnings through higher passenger volumes.
  
• OMA Cargo's organizational efficiencies have resulted in 22% growth, enhancing revenue potential and operational profitability.
  
• Industrial park activity, boosted by strong regional demand and the weaker peso, has increased revenue by 61%, potentially improving future earnings and cash flow.

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 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.7% today to 37.5% in 3 years time.
• Analysts expect earnings to reach MX$7.2 billion (and earnings per share of MX$18.2) by about March 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 17.8x on those 2028 earnings, up from 15.9x today. This future PE is greater than the current PE for the US Infrastructure industry at 14.2x.
• 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 17.09%, as per the Simply Wall St company report.

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

Risks

• Aircraft capacity constraints due to Pratt & Whitney engine issues affected major airline partners, limiting seat availability and potentially impacting revenue growth from passenger traffic. (Revenue)
  
• Operational restrictions at the Mexico City International Airport present challenges, potentially limiting the connectivity and efficiency of flight operations, which can affect overall traffic and revenue. (Revenue)
  
• The depreciation of the Mexican peso against the U.S. dollar could lead to increased costs, particularly in industrial services and other areas dependent on international pricing, affecting net profit margins. (Net margins)
  
• Competition in adding new routes and the pressure to optimize commercial spaces might face hurdles if passenger traffic fluctuations occur, which could affect earnings from non-aeronautical revenues if consumer spending slows. (Earnings)
  
• Recent macroeconomic volatility and potential cost increases, including concession tax rate hikes from 5% to 9%, could strain financial performance and impact EBITDA margins. (EBITDA margins)

Valuation

• The analysts have a consensus price target of MX$207.544 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$175.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$19.2 billion, earnings will come to MX$7.2 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 17.1%.
• Given the current share price of MX$202.33, the analyst price target of MX$207.54 is 2.5% 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.