These days, there's plenty of international investment capital flowing into cash-producing infrastructure operators like toll roads, bridges, and airports. The Q4 and year-end results from recently IPOed Mexican airport operator Grupo Aeroportuario del Centro Norte (NASDAQ:OMAB), known as OMA, offer a pretty good explanation for why these kinds of investments should be on anyone's radar.
As with sister companies Grupo Aeroportuario del Pacifico (NYSE:PAC) and Grupo Aeroportuario del Sur (NYSE:ASR), a high proportion of fixed costs means that revenue growth can outpace increases in passenger traffic. That lets money from the top line flow toward the bottom in greater quantities.
At OMA, for example, Q4's 15.5% traffic increase yielded 17% revenue growth, and margins expanded nicely. Because of the vagaries of taxes, lumpy capital spending, and other expenses at OMA, I think earnings before interest, taxes, depreciation, and amortization is a reasonable way to pin down the company's profit trends. For Q4, EBITDA climbed 49.2% over the prior-year quarter, with the EBITDA margin rising 11.9 percentage points.
For the full year, the 11.2% traffic increase brought a 14% uptick in total revenue. EBITDA rose 25.2% to 885 million pesos, with the margin rising 4.8 percentage points to 55.4%.
U.S. investors may be scratching their heads and saying "What's the net, man?" For the confused, earnings equaled $0.85 per American depository share.
Quite frankly, there's too much to chew on in OMA's voluminous (but clearly written) earnings release. As always, in a business with many locations and plenty of sub-concessionaries, there's plenty of give and take. A drop in international traffic owing to the cessation of one airline's flights is offset by an uptick in cruise-related air travel at another location.
Shareholders may want to note that 2006 capital spending of 418 million pesos was heavier than the norm over the past few years -- 63% more than FY 2005, if my numbers are right. The money helped to expand Monterrey and Chihuahua and update the facilities at Ciudad Juarez and Acapulco. Despite that, the company's cash-producing power looks strong to me, although the lion's share of this year's good times went to previous shareholders, in the form of a special dividend paid before the IPO. (Hey, the early birds earned that tasty morsel.)
I expect more of the same for 2007, though current shareholders should expect some movement in expenses. For example, this year's decrease in administrative and general expenses will likely be a one-time benefit. Since OMA is a public company reporting in both Mexico and the U.S., some of those costs will rise.
But as I've mentioned before, the short- and longer-term growth "story" here is greater traffic. Investors hope that OMA can continue to draw an ever-expanding pool of former bus users through its airports, especially commerce hub Monterrey. Given its airports' ongoing traffic increases, led by low-cost carriers like VivaAerobus, that story looks intact to me.
In the meantime, the shares continue to look like a decent long-term value to me. I certainly consider them a lot better bargain than the airlines, which have to compete with each other and, as JetBlue (NASDAQ:JBLU) learned, take major lumps when the weather doesn't cooperate. Of course, the odd nasty storm can put the hurt on airports, too, as ASUR discovered two years back. But unlike JetBlue, which has to worry that Southwest (NYSE:LUV) or Continental (NYSE:CAL) will come in and kick it when it's down, no one's going to fly in and drop off a new airport just because times get tough.
Yesterday's market panic, however, should serve as a reminder that even the market's surer things can get much cheaper. Until there's a hiccup in these shares based on real news, rather than far-off market jitters, I'll continue to regard drops in OMA's share price as opportunities.
Seth Jayson recommended OMA for the Fool's international investing service, Motley Fool Global Gains. To see what's on tap this month, try the newsletter free for 30 days.
At the time of publication, Seth Jayson had shares of ASUR but no positions in any other company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. GA del Pacifico is a Motley Fool Hidden Gems pick, and JetBlue is a Stock Advisor selection. Fool rules are here.
