The aerospace and transport sector has been in favor of late. The iShares DJ Transportation Average (NYSEARCA:IYT) has rallied 17% year-to-date while the S&P 500 (NYSEARCA:SPY) is only up 9%. Recently, I wrote an article about Alaska Air Group (NYSE:ALK), which is a regional airline that has outperformed big sisters like Delta Air Lines (NYSE:DAL) and United Continental Airlines (NYSE:UAL). However, a certain "under-the-radar" Mexican airport operator has caught my attention. This airport-focused company, Aeropuertos del Sureste (NYSE:ASR), has received little attention so far this month from Seeking Alpha authors, with the most recent article being published more than two weeks ago, but the company deserves more attention.
Aeropuertos del Sureste is a Mexican company operating nine airports in southeast Mexico. The company is also the operator of Cancun International Airport. Cancun is a premiere destination for visitors looking to spend a relaxing vacation on the warm Caribbean waters. Cancun city is close to Mayan ruins, including Chichen Itza, a place that was awarded one of the "New 7 Wonders of the World". As a result, the airport has a steady flow of passengers throughout the year, and generates steady cash flow for the company.
Furthermore, according to the Mexican government, the violence in Mexico due to drug-cartel wars has been diminishing since 2011. This should help attract more foreign visitors in the near term. In addition, the "Mayan Riviera, i.e., Cancun region" has managed to see lower levels of violence when compared to other regions, especially in Northern Mexico. With travelers recovering their confidence that Mexico, namely Cancun, is a safe and secure destination, an increase of passenger flow should further drive Aeropuertos del Sureste's revenues higher.
Part of this increase in passenger traffic is exhibited in the company s most recent earnings report. According to the report, the total passenger traffic was up 11.06% last quarter on a year-on-year basis. Further, international passenger traffic increased by 10.08%. Travelers appear to be recovering confidence, and they are choosing Cancun as top vacation spot.
As far as recent performance, the company reduced total operating costs and related expenses by 12.23% on a quarter-over-quarter basis. Net income also increased by 56.76% to approximately $55 million from $35 million last quarter.
On the fundamental side, the company is trading at a P/E of 24.04, and in comparison to its peers, it might be considered "somewhat" overvalued. It is also paying a near 2% dividend yield. However, the company has been increasing its profit margin, and has a solid balance sheet, with no debt.
The Take Home Message
Aeropuertos del Sureste has a solid business model, operating the top-destination airport in Mexico, and is beginning to see an increase in total passenger traffic. The reduction of violence in southeast Mexico is one of the key drivers for this growth. According to the Mexican government, the violence-index should continue to decrease, which will further help travelers regain confidence in traveling to Mexico again. So far, the company has reported a 10% increase in international passenger traffic, and I am confident this number will only improve over the interim. Furthermore, the company offers investors a 2% dividend yield, but with a widening profit margin, future hikes could well be in the company's future. Thus, I would consider Aeropuertos del Sureste a solid investment on the long side of the markets.
Marshall Hargrave is gratefully acknowledged for providing me with guidance to improve my writing skills.