Valuation of Aena – a significant upside ahead

Valuation of Aena – a significant upside ahead

  • 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
  • Aena in play – activist investor TCI became the largest investor 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 has over 6500 employees.

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.

Since 2011 the company is on active restructuring mission to reduce costs and decrease leverage. Over the last four years the company managed to reduce costs by €255 million, significantly improve profitability (from net loss of €306 million in 2011 to net profit of €597 million in 2013 and cash flows and reduce leverage significantly from 14x net debt/EBITDA in 2011 to 7x in 2013.

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 plans to keep a 51 per cent controlling stake in the operator. The largest private shareholder in the IPO was The Children Investment Fund (TCI), a prominent activist fund run by on of Britain’s biggest philanthropist 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.

TCI strategy for the investment has not been disclosed. I followed recent involvement of TCI in the IPO of Royal Mail. After Royal Mail IPO Christorpher Hohn´s TCI emarged as the largest Royal Mail shareholder with 5.8% stake. TCI invested in Royal Mail as it planned to unlock the significant hidden value of property assets that were undervalued on Royal Mail balance sheet. TCI were quite successful with this investment generating over 50% return over six months period. Aena might be a similar play. José Manuel Vargas Gómez, Aeana CEO, stated on CNBC that Aena also has significant land assets that are currently not used. What is the value of the opportunity is uncertain, what is certain though is, that TCI significant presence indicates that there must be a hidden opportunity to be realized. The fact that Christopher Hohn personally sits on the Board of Directors of Aena is a further indication how interesting the investment for TCI is.

As stated above there is no analyst research on Aena – no investment bank or brokerage house is currently covering the Aena stock, mainly due to post IPO restrictions. 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 vs. 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

The table below indicates that Aena is more highly leveraged than its peers. The higher leverage can be demonstrated by higher Net Debt to EBITDA or Net Debt to Equity ratios. On the other hand EBITDA to Interest Expense ratio indicates that due to higher profitability of Aena the debt level is less out of line that it would seem from balance sheet ratios.

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 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

In general a multiple valuation should be performed based on forward looking financials. Past is past, but the shares trade on a future outlook. For Aena it is a little bit more difficult. There is no analyst’s research, no consensus numbers. At this stage I did not try to forecasts 2015 performance. Therefore, I performed valuation based on 2014 financials. The airport operation is a stable cash flow generating business. If we assume that 2015 would be a year without major economic disruptions than we can assume that 2014 performance is a good proxy for a future performance. Under such assumption, 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
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     29%
Source: Bloomberg, own research


As shown in the table above Aena was able to generate a better growth, a better profitability and a better return on equity than its peers. Aena should therefore 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.

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