Grupo Aeroportuario: Taking Flight

09/10/2015 9:31 am EST


Timothy Lutts

Publisher, Cabot Heritage Corporation

Our latest new recommendation is a low risk air travel stock, notes Timothy Lutts, editor of Cabot Stock of the Month.

Grupo Aeroportuario Del Pacifico (PAC)—or GAP as it’s known in Mexico—owns and operates 12 airports in Mexico. It also operates Sangster International Airport in Montego Bay, Jamaica, a business it acquired in April.

GAP’s roots go back to 1998, when the Mexican government privatized the country’s airports. The company came public in 2006 and today it’s the second-largest operator of airports in Mexico.

It’s a solid business, with a deep moat and good recurring income. But the big question to ask about GAP is, “Where will the growth come from?”

In the short-term, the answer is that growth is happening now. For every month of this year, the company has reported substantial increases in passenger traffic at its Mexican airports.

The primary source of revenues is charges that are automatically collected by the airlines from each passenger. In addition, there are landing charges, aircraft parking charges, and charges for airport security services.

The company also gets revenues from leasing space in its airports to airlines, duty-free store operators, food and beverage providers, car rental companies, VIP lounges, travel agencies, and more.

GAP’s passenger numbers are up mainly because fuel prices are low, and thus flying has become increasingly more affordable, both to Mexicans (who choose it over buses) and to vacationers (Americans in particular) heading for GAP’s tourist destinations.

But what about the longer-term? Longer-term, I have two reasons to believe that GAP has continued growth ahead.

Reason one is that the purchase of the Jamaica airport appears to be step one in a plan to expand in the fragmented Caribbean market, bankrolled by the excess cash now being generated in Mexico.

Reason two is that Mexico has great upside potential, and thus GAP, as a major participant in the country’s infrastructure, will benefit from that.

The stock has been under accumulation and the recent global selling has brought a decent buying opportunity.

GAP is not a hot company and not a fast-growing company. But it is well run and it has very little debt. It also pays a 1.3% dividend.

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