Resilient Macquarie Airports A Value Proposition

This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN

The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

As Qantas ((QAN)) demonstrated with its recent cutting of earnings guidance, the global downturn has impacted heavily on air travel and this means conditions are also becoming more dificult for airport owners such as Macquarie Airports ((MAP)), which owns the Sydney Airport amongst others.

But last week’s first quarter result for Sydney Airport shows, in the view of Credit Suisse, the group’s ability to deliver EBITDA (earnings before interest, tax, depreciation and amortisation) growth even in the face of a more difficult operating environment.

The results showed revenue increased by 1.9% on the previous corresponding period to $204.6 million, this despite a decline in passenger growth numbers during the period of 4.4%. To achieve this the broker notes management is succeeding in employing tight cost control, though CS analysts note ongoing falls in passenger numbers will make it more difficult to generate additional cost savings going forward.

Macquarie similarly liked the result, noting it was ahead of its expectations with respect to earnings. This supports the broker’s view the group’s earnings can be regarded as defensive through the global financial crisis, which makes the stock attractive enough to justify an Outperform rating.

RBS Australia similarly expects revenues will hold up despite the economic downturn, even when an additional six to nine months of weaker traffic numbers is factored into its estimates. As well, the broker suggests consensus traffic numbers are probably a little overdone on the downside, which supports the argument there is value in the stock at current levels.

The other positive according to JP Morgan is the scope for passenger charges to increase further in coming years, especially for international passengers. The broker notes such fees have already risen by a little more than 8% this year but on its numbers JP Morgan estimates these charges could grow by a further 12-16% by 2012, meaning aeronautical revenues would remain relatively resilient even in the face of declining passenger numbers.

Given this the broker retains its Overweight rating on valuation grounds, while the FNArena database overall shows six Buy ratings, two Holds and Aspect Huntley with an Avoid recommendation. JP Morgan’s price target of $2.85 is broadly in line with the average target according to the database of $2.81, with Macquarie and Bank of America-Merrill Lynch leading the way with identical $3.20 target prices and UBS the most conservative at $1.75.

Shares in Macquarie Airports today are slightly weaker despite a stronger overall market and as at 12.15pm the stock was down 1c at $1.74. Over the past year the shares have traded between $1.305 and $3.34.

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