Stock Analysis
- Mexico
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- Infrastructure
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- BMV:ASUR B
Estimating The Fair Value Of Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB)
Key Insights
- Using the 2 Stage Free Cash Flow to Equity, Grupo Aeroportuario del Sureste S. A. B. de C. V fair value estimate is Mex$537
- Grupo Aeroportuario del Sureste S. A. B. de C. V's Mex$526 share price indicates it is trading at similar levels as its fair value estimate
- The Mex$632 analyst price target for ASUR B is 18% more than our estimate of fair value
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Grupo Aeroportuario del Sureste, S. A. B. de C. V. (BMV:ASURB) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Don't get put off by the jargon, the math behind it is actually quite straightforward.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
Check out our latest analysis for Grupo Aeroportuario del Sureste S. A. B. de C. V
Crunching The Numbers
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | |
Levered FCF (MX$, Millions) | Mex$10.3b | Mex$11.0b | Mex$15.2b | Mex$16.6b | Mex$18.0b | Mex$19.5b | Mex$21.2b | Mex$22.9b | Mex$24.8b | Mex$26.7b |
Growth Rate Estimate Source | Analyst x3 | Analyst x3 | Analyst x1 | Est @ 8.99% | Est @ 8.67% | Est @ 8.44% | Est @ 8.29% | Est @ 8.18% | Est @ 8.10% | Est @ 8.05% |
Present Value (MX$, Millions) Discounted @ 16% | Mex$8.9k | Mex$8.2k | Mex$9.8k | Mex$9.2k | Mex$8.6k | Mex$8.0k | Mex$7.5k | Mex$7.0k | Mex$6.5k | Mex$6.1k |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = Mex$80b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 7.9%. We discount the terminal cash flows to today's value at a cost of equity of 16%.
Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = Mex$27b× (1 + 7.9%) ÷ (16%– 7.9%) = Mex$358b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= Mex$358b÷ ( 1 + 16%)10= Mex$81b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is Mex$161b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of Mex$526, the company appears about fair value at a 2.1% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
Important Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Grupo Aeroportuario del Sureste S. A. B. de C. V as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 16%, which is based on a levered beta of 1.249. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Grupo Aeroportuario del Sureste S. A. B. de C. V
- Earnings growth over the past year exceeded the industry.
- Debt is not viewed as a risk.
- Dividends are covered by earnings and cash flows.
- Earnings growth over the past year is below its 5-year average.
- Dividend is low compared to the top 25% of dividend payers in the Infrastructure market.
- Annual revenue is forecast to grow faster than the Mexican market.
- Current share price is below our estimate of fair value.
- Annual earnings are forecast to grow slower than the Mexican market.
Moving On:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Grupo Aeroportuario del Sureste S. A. B. de C. V, we've put together three relevant aspects you should look at:
- Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Grupo Aeroportuario del Sureste S. A. B. de C. V , and understanding it should be part of your investment process.
- Future Earnings: How does ASUR B's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every Mexican stock every day, so if you want to find the intrinsic value of any other stock just search here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About BMV:ASUR B
Grupo Aeroportuario del Sureste S. A. B. de C. V
Grupo Aeroportuario del Sureste, S. A. B.