This Aena stock analysis is part of my global airports stocks list with detailed stock by stock analyses.
AENA is a relatively recent IPO as the company went public in 2015 when the Spanish government decided to take it public.
AENA stock really took off after the IPO thanks to its growing dividend and the improving situation in Europe. However, the stock is down approximately 33% from its 2017 to 2020 plateau and it is time to see whether COVID-19 represents an opportunity to add Aena stock to your portfolio.
The 2019 dividend yield on the current price would be 6.35%, a level unlikely to be sustained if the situation in Spain and Europe doesn’t return to pre-COVID-19 levels. As with all other analysed airports, it is important to see what will be the impact of the current crisis and see for how long can the current shareholders structure last within the environment and what are the hopes for recovery.
The Spanish administration still owns 51% of the Aena. This might represent a risk if Spain gets into trouble down the road, but also a benefit as the focus will be on dividends.
This Aena stock analysis will comprehend:
Further, the analysis will be based on the comparison with other analysed airports, Aena’s Annual report, latest investor presentation and Aena’s strategic plan for the current years.
Aena stock gives you the exposure to 46 Airports in Spain, 51% of London’s Luton airport (WARNING: concession expires in 2031), 12 airports in Mexico, two in Jamaica and two in Colombia. In March 2019, AENA acquired six airports in north-east Brazil.
As most airports, the business model consists not only of air traffic related activities but also on commercial and other activities on the ground.
What is interesting for Aena is its real estate opportunity even if I am a bit sceptic about it given the negative consequences in the Spanish real estate field after the 2009 Great recession. More about that in the strategic plan discussion below.
The key customers for Aena are Ryanair and Vueling given the low cost, touristic orientation of many of Spain’s destinations.
All in all, Aena is a typical airport operator. The keys to watch are the COVID-19 impact and the correlation of the investments and the growth. Investments that cater for an expected market growth rate of 5% while the growth stagnates, will not make for good investments and vice versa.
Aena, like Zurich Airport, has high margins. This means that the COVID-19 impact might not be as terrible as many might expect. This also explains why the stock fell ‘only’33% during this crisis.
In April 2020, Aena had almost 3 billion EUR in liquidity through cash and credit facilities. Given that operating costs in 2019 were 2.5 billion and the above savings show the company will save almost 100 million per month, without revenue, Aena would lose maximally 1.2 billion per year. Thus, the company would remain as is even if COVID-19 lasts for another two years which is unlikely given the positive developments we are seeing in many countries.
So, we can continue with the analysis and look at its strategic plan.
The basis for their strategy, like for other airports, is that global traffic will at least double in the next two decades.
While the company wasn’t yet public, they have invested 19 billion EUR. This, alongside new investments, should lead to positive long-term returns.
They are continuing to invest in Madrid and Barcelona but one has to keep in mind the airport business is a regulated business, which means that there is also regulated capital expenditures with questionable returns on investments. The 19 billion EUR invested above didn’t reach satisfying returns due to the fact that two recessions hit Europe (2009 and 2012).
A hidden asset could be Aena’s landbank. They currently have 1 million square meters but they could develop that byan additional 4.2 million square meters over the coming decades.
Given that real estate plays are extremely profitable for airports thanks to the attractiveness of the land, the development of the area could be very profitable. However, the result of such projects depends on economic growth and demand for
Apart from real estate, their plan is to continue to expand globally as also many airports are doing given the expectation of high growth in traffic.
If global traffic grows by 4% per year, all the investment will pay off significantly and investors could expect to see double digit returns over the long-term in the form of dividends and capital gains.
Over the past decade, revenues have grown thanks to acquisitions and also organic growth. The staggering thing with AENA are the high margins where the net profit margin over the past years was constantly around 30%.
More important that earnings, are cash flows. Aena has operating cash flows that are almost 50% of revenues. After investments it leaves it with free cash flows that are in the range between 1 billion EUR and 1.5 billion EUR.
Compared to the current market cap of 17 billion, the cash flows in a good year give it a cash flow yield of around 9% which is a very interesting number. Plus, if we assume 5% growth going forward, returns for investors could be in the mid-teens.
The debt should be manageable as 6.5 billion EUR should not be a problem on the 1.5 billion of free cash flows in a good year. Plus, interest rates in Europe are ridiculously low.
From a fundamental perspective, the cash flows are what give the value. So, if the cash flows will grow past pre COVID-19 levels, then so will the value.
Of the reasons for the good stock performance over the last years was the fact that Aena’s dividend increased significantly with high FCF pay-out ratios. When the dividend doubles, so does usually the stock.
If then continue to grow over the long-term, given the extreme margins, I wouldn’t be surprised to see the company paying 2 billion in dividends over the long-term. That, alongside a positive environment, would likely push the yield down to 5% which would imply a 40 billion EUR market capitalization and a return of more than 100% for current investors.
However, as mentioned often in this analysis, it all depends on the COVID-19 recovery. But, even if it takes a few years for things to return to 2019 levels, the investment returns are still attractive. If things return to 2019 levels, the dividend yield based on 1 billion EUR payment would still give a 5.6% yield.
When it comes to Aena stock price forecast, if and when the COVID situation returns to normal, AENA makes 2 billion EUR in operating cash flows and pays a dividend of 7%, I would expect the stock to quickly return to 2019 levels as, given the current interest rate environment, 7% yields are staggering.
However, we don’t know when will the situation return to normal as parts of Spain are still locked down. Plus, tourism will take time to grow again while some airlines will most likely go bust. On a personal note, I was supposed to fly to Barcelona in April of 2020, I hope to do that in 2021, but we will see.
Let’s assume that by 2025 the situation returns to normal; the market gives the stock a 20 free cash flow valuation, and the market capitalization is already at 30 billion. Then, if the business grows by 5% per year to 2030 and the dividend grows alongside that by let’s say 10% per year, that would be the returns one can expect. So, if the situation ever returns to normal, we are looking at double digit returns from Aena stock over the next 10 years.
There are always risks, from a deep recession hitting Europe and especially Spain, one of the most indebted countries in the world, from environmental issues etc.
The Aena Stock Analysis is part of my Airport stocks analysis made by Sven Carlin for the Sven Carlin Stock Market Research Platform.
I love to research businesses and the respective stocks. My goal is to research a few hundred of them each year and then hopefully find a few good investments. The only way to do that is to turn as many stones as possible and follow the interesting businesses closely. I am happy to share the research process here and I hope you enjoyed this and the other stock analyses published here.
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