Expanded Duty-Free Areas And New Logistics Centers Will Boost Future Commercial Prospects

Key Takeaways

• Strategic infrastructure projects and resumed international travel are set to boost revenue and improve net margins by increasing non-aeronautical income.
  
• Improved operational efficiencies and a strong financial position provide flexibility for growth, with opportunities in contract extensions and strategic investments.
  
• Currency volatility, dependency on external factors, and market challenges could constrain revenue growth and earnings stability across key regions, affecting overall financial performance.

Catalysts

Through its subsidiaries, acquires, develops, and operates airport concessions.

• The continued recovery and expansion of international passenger traffic in Argentina, supported by resumed and additional flight routes by major airlines, is expected to positively impact revenue growth as international travel generally generates higher aeronautical and commercial revenues per passenger.
  
• Strategic infrastructure enhancements and commercial projects, such as the expansion of duty-free areas in Argentina, the construction of a logistics center in Brazil, and new covered parking facilities in Uruguay, are anticipated to boost commercial revenues and improve net margins by increasing non-aeronautical revenue streams.
  
• Ongoing cost control measures and strategic initiatives across various markets aim to enhance operational efficiencies, especially in Argentina, which could lead to improved EBITDA margins and overall profitability.
  
• The net leverage ratio improvement and robust liquidity position provide extra financial flexibility to invest in future growth opportunities, potentially driving up earnings through strategic investments and acquisitions.
  
• The potential to secure contract extensions and amendments in existing concessions offers an avenue for sustained long-term revenue growth by prolonging revenue-generating assets and enhancing the portfolio's value over an extended timeframe.

Corporación América Airports Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corporación América Airports's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.3% today to 12.5% in 3 years time.
• Analysts expect earnings to reach $260.5 million (and earnings per share of $1.6) by about April 2028, down from $282.7 million 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 17.0x on those 2028 earnings, up from 11.1x today. This future PE is greater than the current PE for the US Infrastructure industry at 11.1x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Corporación América Airports Future Earnings Per Share Growth

Risks

• The sharp devaluation of the Argentine peso in late December 2023 affected year-over-year comparison figures, indicating currency volatility that could lead to unpredictable earnings fluctuations. This could impact the company's revenues and net margins.
  
• Declines in domestic passenger traffic in Argentina due to the absence of government incentives highlight the dependency on external factors for local market performance, which may affect passenger-related revenues.
  
• Lower cargo revenues and reduced duty-free sales in Argentina, linked to the devaluation and fewer storage days, suggest vulnerabilities in non-passenger revenue streams, which could impact overall revenue growth.
  
• External market conditions such as high airfare prices and ongoing security concerns in Ecuador have affected domestic travel demand, potentially limiting growth in earnings from these markets.
  
• Challenges in the Brazilian aviation sector, including aircraft availability issues, may constrain traffic growth and revenue potential, affecting overall earnings stability in the region.

Valuation

• The analysts have a consensus price target of $21.617 for Corporación América Airports 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 $24.5, and the most bearish reporting a price target of just $19.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $260.5 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 8.4%.
• Given the current share price of $19.48, the analyst price target of $21.62 is 9.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.