On November 11, Bill Simpson wrote an analysis of the Grupo Aeroportuario Del Centro Norte IPO (NASDAQ:OMAB). The IPO began trading on Wednesday Nov. 29, when 20.9 million shares were priced at $18, the midpoint of the expected range. It opened that morning at $22 (see chart below).
The text of Mr. Simpson's original writeup follows:
OMAB - Grupo Aeroportuario Del Centro Norte
Grupo Aeroportuario Del Centro Norte (Central North Airport Group) plans on conducting a dual offering in the US and Mexico. In the US, OMAB plans to offer 12 million ADS. In Mexico, OMAB plans to offer an equivalent of 12 million ADS in the form of actual shares. Both offerings assume the over-allotment is exercised.
A total of 24 million ADS and ADS equivalent shares will be offered combined in the US and Mexico at a range of $14.50 - $16.50. All of the shares will be sold by insiders, in this case the majority shareholder. Much like 2006 IPO PAC, this IPO is being conducted as a step by the Mexican Government to divest and privatize airport ownership. The selling stockholder is a trust established by the Ministry of Communications and Transportation with NAFIN, a Mexican development bank owned and controlled by the Mexican government. Through this offering, the Mexican government will be 100% divested of OMAB, assuming over-allotment is exercised.
Citigroup is lead managing the IPO, UBS and Scotia co-managing. Post offering OMAB will have an ADS equivalent of 50 million shares/ADS outstanding for a market cap of $775 million on a $15.50 pricing.
There is no use of proceeds as all IPO monies will be going to the trust set up by the Mexican government.
Post-offering an entity owned 75% by Empresas ICA and 25% by Aeroports de Paris will own 15% of outstanding shares but will control OMAB through a separate class of shares. In addition ICA itself will own another 35% of OMAB's common shares post-IPO. ICA is Mexico's largest engineering, procurement and construction company. Essentially ICA will be the majority and controlling shareholder of OMAB.
From the prospectus:
'We were incorporated in 1998 as part of the Mexican government's program for the opening of Mexico's airports to private investment. We hold concessions to operate, maintain and develop 13 airports in Mexico, which are concentrated in the country's central and northern regions. Each of our concessions has a term of 50 years beginning on November 1, 1998.'
Of the 13 airports, only one is in a major metropolitan area, Monterrey. Traffic in the Monterrey airport accounts for nearly 45% of OMAB's traffic for all 13 airports. In addition to Monterrey, OMAB operates airports in 3 tourist destinations(Acapulco, Mazatlan and Zihuatanejo) as well as 9 smaller cities including Chihuahua, Tampico and Ciudad Juarez. All cities combined have a population base of 24 million.
Total airport traffic in all of OMAB cities totaled 15% of all Mexican airport traffic in 2005. Traffic in OMAB's airports will be close to 12 million passengers in 2006.
Mexico was the eighth largest tourist destination in the world in 2005 in terms of international arriving tourists. Mazatlan is the 5th largest tourist destination in Mexico, Acapulco the 7th.
Monterrey is the 3rd largest city in Mexico in population with 4.2 million in the greater metro area. The Mexican government has recently created an initiative to decrease passenger and cargo traffic in Mexico City. As part of the plan Monterrey has been chosen as one of the alternative transportation hub airports.
Domestic airlines account for 75% of OMAB's passenger traffic with Aeromexico accounting for 25% itself. International airlines. accounts for 25% of OMAB's total passenger traffic.
Traditionally, air travel in Mexico was too expensive for any but upper class citizens and international travelers. A driver for these Mexican airport IPOs is the fairly new proliferation of low cost carriers commencing and/or expanding operations throughout the country. This has opened up air travel for a much wider cross section of the Mexican population.
About 80% of OMAB's annual revenues are derived from aeronautical services related to the use of facilities and primarily consist of a fee for each departing passenger, aircraft landing fees, an aircraft parking fee, a fee for the transfer of passengers from the aircraft to the terminal building and a security charge for each departing passenger. All of these services are regulated by the Mexican government under a 'maximum rate' per workload structure. Note that while this means OMAB can not charge more then the 'maximum rate' per workload set at each airport, OMAB is not restricted from generating higher revenues due to increased traffic.
20% of OMAB's revenues is unregulated revenues, predominantly car parking fees and royalty fees from airport concessions. Like many airports throughout Mexico, OMAB has modernized many of their terminals and expect to continue to grow the commercial revenue royalty base going forward.
OMAB is highly dependent on overall passenger traffic in their airports. In both the 80's and 90's Mexico experienced periods of economic instability which resulted in runaway inflation and the devaluation of the currency. While the country has stabilized and grown throughout this decade, economic slowdowns have historically effected the Mexican economy to a much greater degree then in the US. If the US slips into a recession, it is a pretty safe assumption that the Mexican economy will suffer to a greater extent. Really anything that slows air travel in Mexico will have a negative impact on OMAB.
$3 a share in cash post-offering, no debt.
1.1 X's book value on a $15.50 pricing.
OMAB does plan on paying an annual dividend. It appears it will be paid in an annual lump sum and will consist of a minimum of $0.60 annually plus and additional funds available for distribution. In 9/06 OMAB declared a dividend of $0.78 for the full year ending 9/30/06. Assuming a similar payout in 9/07, OMAB would be yielding 5% annually.
After slowing air traffic post 9/11 and recession, OMAB has steadily grown revenues the past 3 years. Overall revenues in 2005 were $122 million, an 11% increase over 2004.
2006 - After a strong 3rd quarter, through 9 months of 2006 overall revenues appear poised to increase 19% to $145 million for the full year. Operating margins are a strong 38%. Net margins an equally impressive 32%. Net earnings in 2006 should be in the $0.90 - $0.95 range. On a pricing of $15.50 OMAB would be trading 17 X's 2006 estimated earnings.
A quick comparison with similar company: Grupo Aeroportuario del Pacifico (NYSE:PAC). PAC IPO'd in February 2006 at $21 a share and currently trades at $38 a share.
PAC - $2.15 billion cap, trades a bit over 1 X's book value and 25 X's 2006 earnings. PAC yields 2.6%.
OMAB - $775 million at $15.50. Would trade a bit over 1 X's book value and 17 X's 2006 estimates. At $15.50, OMAB would be yielding 5%.
This is a solid offering in a space that has already seen an earlier IPO appreciate 80%+. OMAB has a quasi monopoly in each of their markets being the only airport in each area. As long as nothing seriously derails overall passenger and cargo traffic in their cities, OMAB should trade well above IPO price mid-term+.
OMAB chart since IPO: