Friday, July 3, 2009

Volume 3, Issue #59

Also in Today's Issue...

Grupo Aeroportuario del Sureste (ASR), which means Airport Group of the Southeast, operates nine airports in Mexico's busy southeastern region. ASR is a government-regulated monopoly. With no competing airports in this part of Mexico, the group holds a monopoly over air traffic. If you want to fly to Cancun, you must land in Cancun International Airport, operated by ASR. The Mexico City-based company is licensed by the Mexican government to operate these airports under a 50-year contract that runs from 1998 through 2048. The common shares trade on Mexico's Bolsa exchange under the symbol "ASUR." The company also trades as an American Depository Receipt (ADR) under the ticker "ASR" on the New York Stock Exchange, with an exchange ratio of 1 ADR to 10 common shares of the company.

Yield: ASR pays dividends annually, usually in May or June. An annual dividend of $4.6936 per share was paid on May 26th to shareholders of record on May 12th. That gives the shares a yield of 13% at today's prices. The latest payout is more than twice as much as last year's, which was more than twice as much as the year before. Approximately half was from ordinary income and the balance was a one-time capital gains. The ordinary income portion is about 93% of 2008 earnings.

Performance: As a government-regulated monopoly that operates under long-term contracts, ASR provides shareholders a reliable income stream.

The airport operator makes money by charging airlines and passengers fees for using its airport facilities. The more traffic it handles, the more fees ASR collects. While government-regulated passenger fees account for some 75% of income, the company also earns lucrative unregulated rental income from retailers and parking lot providers that lease the airport space.

Revenue has grown an average +8% annually over the past three years, while earnings have declined by about -8% annually. For the first quarter, revenue rose +13%, on increased income mainly from increased traffic at Cancun. Earnings fell by -3% as the higher revenue was offset by higher cost of services.

Outlook: The company's earnings outlook is relatively stable. Earnings of $2.31 per share are estimated to fall by some -8.7%, this year but regain lost ground in 2010 when they're expected to grow by +8.7%.

A variety of near-term risk factors from natural disasters to government policies may affect ASR's revenues. International travelers account for more than half of ASR's passenger traffic and a hurricane can severely dampen tourist travel, as Hurricane Wilma did three years ago, when it hit Cancun.

This year's natural disaster was the swine flu outbreak. Passenger traffic, which accounts for three-quarters of the company's income, has increased an average +10% a year over the past few years. In 2009, however, passenger traffic is expected to decline, partly as a result of the swine flu outbreak, which led to a -51% drop off in year-over-year passenger travel for May.

As well, the heavy hand of the government can take its toll on revenues. In early June, safety concerns led the Mexican government to suspend air traffic operations at one of ASR's airports, which represented 5% of the company's total passenger traffic. The government gave 60 days for the problem to be corrected.

Despite these near-term threats, over the long-term the company should benefit from a steady growth in traffic. Management is implementing a master development plan to upgrade the airports to handle more international traffic in the years ahead. So far in 2009, over $5 million have been invested in airport upgrades, including adding a third terminal and starting construction on a second runway at its Cancun facility.

Overall, the company is well-positioned to maintain stable cash flow and dividend payouts. With zero debt, $4.90 in cash per share, and a monopolistic grip on its markets, the company should continue generating solid returns over the long-term.

Action to Take --> With a beta of 1.12, ASR's shares tend to be volatile as near-term events like the swine flu endemic can trigger a sudden rally or a sharp pullback. Still, the stock has consistently out-performed its industry and the broader S&P 500 in every year over the past five years. Year-to-date, ASR has returned 6.0%, 5.6 percentage points above the S&P 500. Trading near the low end of their 52-week range, the shares are attractively priced, especially given their 13.4% yield.

Good Investing!

--Carla Pasternak
Editor
High-Yield International

P.S. This is just one of ten "Star Performers" Carla Pasternak covers in her latest issue of High-Yield International. These stocks carry an average yield of 11.7% and have returned an average of 21% so far this year. To get the names of these 9 stocks click here.

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