Thomas Barwick
In September 2023, I gave a Buy rating to OMAB stock, and while I believe airport stocks offer compelling investments that take advantage of long-term trends in air travel markets, the stock lost about 20% of its value. He The fall in stock prices was driven by regulatory changes in tariff rules that would put some pressure on passenger fares and separate concession taxes were increased from 5% to 9% to be recognized in the tariff negotiations from 2026 to 2030. In this report, I will discuss the most recent financial results, I will discuss the risks and reaffirm my price target for NASDAQ: OWN stock.
What are the opportunities and risks for Central North Airport Group?
The great opportunity that I see for the airport group is the trend towards nearshoring, which should mean an increase in manufacturing activity in Mexico, and my opinion on this remains the same. Increased manufacturing and economic activity will have a positive impact on air travel demand. The trend towards nearshoring is tangible and supported by solid plans. tesla (TSLA) will begin the construction of its Gigafactory near Monterrey in March and with the construction of the Gigafactory, supply chains will also establish activity in the Monterrey area. Apple (AAPL) the supplier Foxconn also announced an investment of $500 million to increase its manufacturing capacity in the state of Chihuahua. So, there is a strong trend supported by investments that are likely to benefit the Centro Norte Airport Group.
There are also several risks for the OMA Group. The most global is that the stagnation of economic growth can affect manufacturing production or alter the trajectory of the trend towards relocation. Other risks are more specific to airport operators or airport operators in Mexico. The amended tariff rules resulted in a 10% reduction in the Airport Use Fee or TUA and the Airport Use Fee from November with the prescribed inflation correction applied in January. I don't think we'll see any further cuts, but the cut in fare per passenger provides a more challenging trade-off as a 10% reduction in fares per passenger means OMA Group has to look at increasing passenger volume to offset the higher fares. declines partially offset by the correction of inflation.
Another risk centers on problems with Pratt & Whitney geared turbofans. Until 2026, hundreds of aircraft will experience stoppages and Mexico's most important airlines will be affected by this. Basically, this is a capacity cut for those airlines and will also affect airport operators. Since aircraft manufacturers are also unable to build aircraft fast enough to meet demand, the impact of GTF-powered aircraft is even more pronounced. Additionally, cuts in Mexico City International Airport's capacity from 53 aircraft per hour to 42 aircraft per hour also have an impact on connectivity with other airports in Mexico. For the OMA group there was a 9% drop in passengers on the routes that connect the airports of the OMA Group portfolio with the Mexico City International Airport. On the positive side, capacity limitations at Mexico City International Airport, which is not part of OMA's portfolio, may generate additional traffic to airports that are in the portfolio, as some airlines will seek to connect directly to the airports. OMA airports rather than indirectly through Mexico. City International Airport.
North Central Airport Group 
For the fourth quarter, revenue excluding construction revenue increased 13.5%. Total passenger traffic increased by 5.2%, comprised of 5.1% growth in domestic passenger traffic and 5.6% growth in international passenger traffic. Despite the passenger fare cut, domestic passenger fares grew by 14.6% and international passenger fares grew by 9.1%. So despite the cut in passenger fares, we still saw solid growth in passenger fares and aeronautical revenues. Non-aeronautical revenues grew 13.9% driven by 13.5% growth in Hotel Services, 19.4% growth in cargo services and 52.4% growth in real estate services. Overall, diversification revenue grew 14.9%, faster than overall revenue growth. Costs decreased 10.5%, which, together with higher revenues, resulted in an expansion of operating margin from 47.7% to 53.6%. Excluding construction costs, costs grew 13% driven by higher maintenance costs, depreciation and amortization, concession taxes and technical assistance fees. Adjusted EBITDA margins expanded from 75.8% to 77.7%. For the full year, revenue excluding construction costs grew 24.5% with passenger growth of 21.2%, while total costs grew almost 9% and 8.4% excluding construction costs .
Therefore, overall, 2023 was a strong year for OMA Group, with 27.8% growth in adjusted EBITDA, outpacing revenue growth of 24.5%. However, management noted that no margin expansion opportunities are expected for 2024:
Based on our current traffic expectation and the inflationary increases that Ricardo just mentioned that were applied starting in January and also the cost inflationary pressures, we do not see an opportunity for expansion for next year.
Grupo Aeroportuario del Centro Norte Stock Is Still A Buy
The Aerospace Forum
After processing the balance sheet data and forward-looking projections, the implied OMAB stock price target for 2024 would be $111.70, matching the high end of price targets held by Wall Street analysts. I recognize that there is some uncertainty regarding the final tariffs, but even if we capped the increase at half of what was projected, there would still be a 29% increase, to approximately $91.50. As a result, I maintain my Buy rating on the stock and also note that the company has no debt maturing in the next few years.
Conclusion: Despite the Setback, OMAB Stock Remains an Attractive Investment Opportunity
The 2023 results were good despite the discount on passenger fares implemented in the last two months of the year. Going forward, the comparison will be more challenging as we see the annualized effect of the passenger fare cut, but by implementing all the balance sheet data, future projections and taking into account risk factors, I believe OMAB provide an attractive opportunity for investors.
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.
