High-Quality Assets: Investing In Publicly Traded Airports

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Includes: ASR, AUKNY, BJCHY, OMAB, PAC, VIAAY
by: Kevin Quon

Summary

US-based investors can gain access to publicly traded airport operators abroad through ADRs.

Airports provide regional monopolies that tap into the economic growth of a region.

Airport operators generate relatively stable revenue through passive fees and charges along with rental income.

With global markets approaching new highs and interest rates falling to new lows, investors have begun to seek investments with high-quality assets that generate yield in a flight to safety. No greater has this been the case than in the real estate market, where REITs have experienced an extended bull run in light of ongoing global uncertainties. Yet as many US-based REITs have already begun to look stretched in light of the premiums being placed upon them, investors should also remember that safe assets can be found in the exclusivity and durability of particular business operations.

One such sector that is often overlooked by most analysts and fellow contributing writers is that of airport operators. It may come as a shock to many, but investors can directly invest into the operation of several of these key strategic assets found in airports. While most airport operations around the world are privately run or conducted under the jurisdiction of a local government, there are a few public companies available to US investors, largely through thinly traded American Depositary Receipts (ADRs).

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The advantages of these airport investments should be abundantly clear. Airport operators essentially have monopolistic control over key infrastructure gateways to particular geographic locations. As such, investors can directly tap into the both the stability of an essential public transportation network as well as the economic growth of a given region. More so, investors gain access to the expected growth that naturally comes from population increases due to their correlation with increased flight travel.

Below is a list of some of the airport operators available to US investors. A look at the affiliated charts illustrate the stable long-term growth investors should come to expect from these strategic transportation gateways.

Company Name Price Market Capitalization Region of Influence
Beijing Capital International Airport Company Limited (OTCPK:BJCHY) $5.62 $4.87 Billion China
Auckland International Airport Limited (OTCPK:AUKNY) $24.19 $2.88 Billion New Zealand
Flughafen Wien AG (OTCPK:VIAAY) $7.00 $2.35 Billion Austria
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB) $49.23 $2.41 Billion North & Central Mexico
Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASR) $152.10 $4.56 Billion Southeast Mexico
Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (PAC) $101.60 $5.70 Billion West & Central Mexico
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It is worth noting that most airport operators are best obtained via their native stock exchange where the ideal trading volume tends to exist. One key disadvantage for US investors can be the lack of trading volume for the ADRs, which in some cases can prove to be extremely problematic. For example, Flughafen Wien AG last traded 400 shares on June 30, nearly four weeks ago as of the time of writing. Additionally, the pink sheet-listed ADR currently has a wide spread between its bid price of $2.40 and ask price of $12.47. As such, the lack of practical trading volume has essentially prevented the company from being a feasible investment to even consider apart from seeking out the actual stock on a foreign exchange.

One Airport That Stands Out

Out of the above list, one particular investment that I feel deserves some additional commentary is Beijing Capital International Airport Company Limited. The company is majority owned by Capital Airports Holding Company, a wholly owned entity of the Civil Aviation Administration of China. As a government-controlled company, some US investors may have their reservations to invest alongside this majority stakeholder. Yet for others, the same connection provides an open opportunity to invest into one of the nation's flagship assets found in the Beijing Capital International Airport (BCIA) located in the country's capital.

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As it stands now, BCIA currently ranks as the second busiest airport in the world by passenger traffic. The airport handled approximately 90 million passengers in 2015 while experiencing 4.4% growth over the last year. While the airport dates its roots back to 1958, it has undergone multiple renovations to accommodate its growing passenger traffic. Less than a decade ago, the airport constructed the world's second largest terminal in time for the 2008 Summer Olympics which helped to ensure a modern facility with the capacity for additional passenger growth.

The fact the airport remains the primary point of entry and departure in and out of the large communist nation's capital already fortifies its significance. Yet this is also compounded by the fact that China remains a rapidly developing economic powerhouse in the region where growth is dictated by the State. The company's steady performance and financial growth speaks for the opportunity at hand.

According to the company's 2015 annual report, Beijing Capital International Airport Company Limited witnessed annual revenue of 8.51 billion CNY, up from 6.50 billion CNY in 2011. Just as the company saw increasing revenue year over year during this time period, earnings per share increased sequentially from 0.26 CNY to 0.38 CNY. Investors should be reminded that each ADR of BJCHY equates to 5 H-shares (company shares traded in Hong Kong). With an exchange rate of 0.15 (USD/CNY), the ADR is currently trading at a modest trailing price-to-earnings ratio of approximately 19.72.

Breaking down the company's segment revenue a bit more, the company operates through both its aeronautical and non-aeronautical businesses. For the company's aeronautical business segment, the company realized revenue from passenger charges, aircraft movement fees, and airport fees in the amounts of 1.79 billion CNY, 1.67 billion CNY, and 1.14 billion CNY respectively. Concessions, rentals, and car parking fees largely make up the company's non-aeronautical business segment. The amount of revenue realized for these operations in 2015 was approximately 2.65 billion CNY, 1.08 billion CNY, and 0.18 billion CNY respectively.

Overall, the company remains in good financial health. Shareholder equity has sequentially increased year over year from 14.47 billion CNY in 2011 to 18.27 billion CNY as of 2015. Over the same period, the company has reduced its liabilities from 19.43 billion CNY to 14.42 billion CNY. Most importantly the company has steadily paid an increasing dividend. For the ADR, the airport operator has increased its dividend every year from 2013. In US dollars, the dividend was 9.3 cents, 10 cents, and 11.2 cents for 2013, 2014, and 2015 respectively.

Final Thoughts

Seen in a different light, airport operators are akin to being the managers of small cities in themselves. The companies collect fees, rental income, and various charges for the use of their services and facilities. Such operations represent unique diversifying investments that are highly differentiated in regards to their long-term capacity for stable growth. The ability for investors to tap into these strategic infrastructure bottlenecks can provide inherent exposure to a high-quality asset with a practical monopoly in regards to its regional influence.

While such investments do tend to be difficult to find (and perhaps even more difficult to invest in), I believe their enduring business models make them ideal investments for which one can even be satisfied in paying a premium if need be. Investors would do well to consider the long-term outlooks of the airports they are thinking of investing in prior to committing capital. Are there any plans for larger competing airports on the horizon? Is the region expected to grow or contract from a macroeconomic point of view? Answering such questions may prove valuable in considering the long-term stability of the investment.

All things considered, I find Beijing Capital International Airport Company Limited as an investment that has proven its regional leadership in the midst of an emerging economy. The airport has more than doubled its passenger traffic in the past decade and proven its ability to grow further still. While the company is not the only opportunity available, I believe it will do quite well going forward as an essential transportation gateway in this important region of the world.

Disclosure: I am/we are long AUKNY, BJCHY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.