Broker Expectations Flying High For MAp

This story features MICROBA LIFE SCIENCES LIMITED. For more info SHARE ANALYSIS: MAP

By Chris Shaw

Macquarie Airports ((MAP)) reported interim proportional EBITDA (earnings before interest, tax, depreciation and amortisation) of $384 million, a result broadly in line with market expectations. Full year estimates suggest an even better second half of the year is in store, BA Merrill Lynch noting its EBITDA forecast for 2010 stands at $820 million.

Further traffic growth should make BA-ML's full year forecast achievable, the broker expecting Sydney Airport should enjoy second half traffic growth of 4.8%, Copenhagen Airport growth of 7% and Brussels Airport growth of 3%.

From an asset level view, RBS Australia noted EBITDA grew by 13% at Sydney Airport in the period, by 19% at Copenhagen and by 1% at Brussels. Increasing passenger volumes and improved yields per passenger are expected going forward.

Earnings risk for the full year remains to the upside in the view of Goldman Sachs and RBS Australia is similarly positive. The latter notes MAp continues to do well in controlling costs, while passenger volumes and yields per passenger should also improve as conditions become more favourable and as new markets open and more efficient planes are delivered.

The major highlight of the MAp result, according to JP Morgan, was the statement by management the $230 million in sale proceeds generated by the ASUR (Grupo Aeroportuario del Sureste de Mexico) are surplus to requirements and so will be returned to investors. This will be by way of a special distribution of 12.5c per share.

Looking at MAp's cash levels, JP Morgan estimates as much as $360 million of the $773 million on hand is surplus to requirements, opening up the potential for either potentially expensive tranches of debt to be retired or for additional returns to shareholders.

Repaying debt is the most likely use of the cash according to BA-ML, as the stockbroker notes Sydney Airport has around $1.1 billion in refinancings coming due across a 15-month period from September next year and has to re-market its SKIES facility in January of 2012.

The money could also go towards Copenhagen Airport, where the current debt facility is in a cash sweep situation until a refinancing is undertaken. Current European debt market conditions suggests a refinancing may be tough or at least expensive, so BA-ML suggests there is a good chance at least some of the current cash holdings go to address this facility.

Along with the interim result, MAp management reiterated full year distribution guidance of 21c ex the special distribution, with BA-ML seeing scope for this to increase in coming years. JP Morgan agrees and has built such expectations into its model, forecasting dividends will increase to 22c in 2011 and to 25c by 2013.

The solid distribution outlook underlines the value on offer in the stock in JP Morgan's view, as its numbers imply a 2011 yield of 7.7%. The broker suggests the current share price implies the market is failing to recognise both the strength of the current recovery in traffic volumes and MAp's earnings leverage given management's focus on controlling costs.

Most in the market agree as the FNArena database shows MAp is rated as Buy six times against two Hold ratings. The average price target for the stock is $3.44, down from $3.47 prior to the interim result. This reflects the impact of adjusting for the 12.5c special dividend.

Goldman Sachs was one of the broker's to point out at current levels the stock looks attractive given it is trading on a below average multiple at present, while RBS Australia suggests the current discount to its $3.50 valuation is excessive.

Shares in MAp today are slightly weaker and as at 1.15pm the stock was down 3c at $2.94. This compares to a range over the past year of $2.35 to $3.38 and implies upside of almost 17% to the average price target in the FNArena database.

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