Macquarie Airports (MAP) News

Submitted by Jim Thesiger on 30 May, 2008 - 11:17

Macquarie Airports (MAP) has a reiterated BUY rating with a trimmed down target price of $3.67 from Australian stockmarket analysts from Citi.

Macquarie Airports (MAP): Buy Straw Hats in Winter

A Time to BUY — MAP remains a fundamentally strong company with good quality assets and established franchises; a well-managed balance sheet and proven management. Historically, periods of temporary weakness in passenger volumes and consequent stock sell-offs have proven to be smart buying opportunities. We reiterate our BUY rating with a trimmed down target price of $3.67ps (from $3.83ps) backed by a DCF valuation of $4.59ps (from $4.79ps).

Sydney Volume Forecasts Cut by 6–11% — Although passenger volumes are tracking in line with our estimates, a cut in near-term capacity by a number of global airlines and increases in fuel surcharges have prompted us to review our forecasts. Consequently, we have cut our volume estimates for Sydney Airport by 6-11% pa over the next few years, but left our already conservative estimates for other airports within MAP’s group unchanged.

Earnings Estimates Revised Down — Our FY08e EBITDA for Sydney Airport has been cut by 3% to $625m (from $646m). The impact is due primarily to the reduction in aeronautical revenue. The commercial revenue has an element of minimum guarantees and is less sensitive to volume changes over shorter periods. Consequently, MAP’s FY08e EBITDA has been cut by 1% to $1,403m.

Valuation Support Remains — Based on our revised forecasts, MAP is trading at 12.4x FY08e EBITDA. We continue to believe that the stock has been oversold, especially when there are plenty of data points to suggest that high multiples are still being offered for good-quality assets.

Refinancing Risk Is Tolerable — As a result of the cut, our ICR estimate for Sydney Airport has dropped to 1.43x. Although the coverage ratio is skinny, the airport has 90% of its debt hedged. With $1.2b of cash at the MAP level, a $1.8b refinancing of the airport in Sep/Dec 09 should not be a major problem.