Valuation of Aena – A significant upside ahead
The largest European IPO since 2011; up 21% since its launch. Shares performed strongly despite the fact that there is no analyst report published yet. Our valuation shows 30% further upside. Activist investor TCI became the largest investor and will most likely push for further improvements to earn further upside.
Aeana is the world's biggest airport operator based in Spain. The company runs 46 airports and two heliports in Spain and another 15 in Latin America, the United States, and Europe, including London's Luton. It handled nearly 196 million passengers last year, a 4.5% increase over 2013, making it the world's one airport operator by passenger numbers, ahead of Germany's Fraport and France's ADP.
The company reported revenues of €2,876 million and net profit of €596 million for 2013. The company has not published its results for 2014 yet. Under my model, the company should report revenues of €3,025 million and net profit of €648 million.
The IPO was a success. It was five times over subscribed and its shares closed at €70, up 21% from the issue price of €58. All despite the fact that the shares were priced at the very top of the range of the €53-€58 per share.
Spain, which is privatizing the company as it tries to lower a public debt sold in the IPO 49% stake in the company, while planning to keep a 51 percent controlling stake in the operator. The largest shareholder in the IPO was The Children Investment Fund (TCI), a prominent activist fund run by Chris Hohn. TCI bought 7% in the IPO and additional 3% on the first day of trading of the company. In total, TCI invested over $900 million in Aena shares.
As stated above there is no analyst research on Aena - no investment bank is currently covering the Aena stock. To bridge the gap, I performed a quick valuation of the company. The valuation is based on comparables of similar airport operators in Paris, Frankfurt, Zurich, Copenhagen and Vienna.
To check the comparability of the sample, I compared the growth, profitability and leverage of Aena versus the sample.
The table below indicates that Aena reported a better growth and profitability and return on equity than its peers. In general, a faster growing company should attract a higher PE multiple than its peers. Similarly a company with a higher return on equity than its peers should trade at a higher PE multiple than its peers.
| Name | Sales Growth (%) | EBITDA Growth (%) | EBITDA Margin | Operating Income Margin | Net Income Growth (%) | Net Profit Margin | Capex/ Sales (%) | Return on Assets | Return on Equity |
| KOBENHAVNS LUFT. | 6,05 | -21,90 | 55,64 | 38,42 | -43,10 | 25,28 | 20,28 | 10,05 | 36,40 |
| ADP | 1,33 | 1,98 | 39,43 | 25,21 | 13,57 | 13,12 | 16,11 | 3,90 | 9,71 |
| FRAPORT FRANKFURT | 0,85 | 7,64 | 33,46 | 20,29 | 5,88 | 9,27 | 14,14 | 2,42 | 7,18 |
| FLUGHAFEN ZUERICH | -0,19 | 32,49 | 54,47 | 30,79 | 775,90 | 22,41 | 22,96 | 5,61 | 10,81 |
| FLUGHAFEN WIEN | 1,35 | NA | NA | 20,42 | 30,80 | 13,42 | 15,66 | 4,35 | 9,16 |
| Average | 1,88 | 5,05 | 45,75 | 27,03 | 156,61 | 16,70 | 17,83 | 5,27 | 14,65 |
| AENA SA | 10,71 | 48,63 | 52,81 | 24,39 | 9,00 | 20,74 | 16,28 | 3,60 | 21,79 |
| Source: Bloomberg | Â | Â | Â | Â | Â | Â | Â | ||
At the same time Aena is more highly leveraged than its peers.
| Name | Net Debt/EBITDA (x) | Net Debt/Equity (%) | Total Debt/Total Assets (%) | EBITDA/ Interest Expense (x) |
| KOBENHAVNS LUFTHAVNE | 2,12 | 174 | 43,98 | 11,09 |
| ADP | NA | NA | 43,33 | 5,78 |
| FRAPORT AG FRANKFURT | 4,45 | 110 | 46,85 | 4,13 |
| FLUGHAFEN ZUERICH | NA | NA | 32,28 | 14,05 |
| FLUGHAFEN WIEN AG | NA | 55 | 33,64 | 4,75 |
| Average | 3,29 | 113 | 40,02 | 7,96 |
| AENA SA | 5,48 | 274 | 69,77 | 6,07 |
| Source: Bloomberg, own research | Â | Â | Â | |
In general a multiple valuation should be performed based on forward-looking financials. Past is past, but the shares trade on future outlook. For Aena, it is little bit more difficult. There is no analyst’s research, no consensus numbers. At this stage I did not try to forecast 2015 performance. Therefore I performed valuation based on 2014 financials. The airport operation business is a stable cash flow generating business. If we assume that 2015 would be a year without major economic disruptions, then we can assume that 2014 performance is a good proxy for a future performance. The table below shows that Aena trades at 30% discount to its peers on PE multiples.
| Name | Mkt Cap (EUR) | EV | P/E |
| KOBENHAVNS LUFTHAVNE | 3 443 | 4 051 | 26,46 |
| ADP | 10 475 | 13 562 | 28,92 |
| FRAPORT AG FRANKFURT AIRPORT | 4 996 | 8 645 | 22,26 |
| FLUGHAFEN ZUERICH AG-REG | 3 727 | 4 484 | 18,37 |
| FLUGHAFEN WIEN AG | 1 608 | 2 128 | 19,09 |
| Average | 4 850 | 6 574 | 23,02 |
| AENA SA | 10 500 | 21 961 | 16,24 |
| Discount | Â | Â | 29% |
| Source: Bloomberg, own research | Â | Â | Â |
Conclusion
As shown in the table above, Aena was able to generate better growth, better profitability and better return on equity than its peers and therefore it should trade at PE premium to its peers, not discount. Further upside can be expected from the TCI activist actions. The CEO on CNBC mentioned that there are significant underutilized land assets that could be monetized. There should be good times ahead, at least for Aena shareholders.
