Careful with Mexican Airport OMAB

We are keeping our Hold recommendation on Grupo Aeroportuario del Centro Norte, S.A. de C.V. (OMAB - Snapshot Report). First quarter operating results were positive, and the outlook for the very short term remains encouraging. Domestic passenger traffic continued to increase during the first few months of 2008. Nevertheless, the continued increases in oil price, higher inflation and interest rates throughout the world, particularly in Mexico, and the difficult economic environment in the U.S. are matters of high concern.

OMAB operates a well-balanced and diversified portfolio of airports in Mexico. The company has been posting good results in recent years, investing in improving the terminals and increasing the commercial activity within the airports. We remain highly encouraged by the company’s strategy retail concept OMA Plaza.

The company recently provided guidance for 2008 and expects full-year passenger traffic to increase between 6-10%. OMAB expects an increase in the capital expenditure in 2008 compared to 2007. We believe those investments will add capacity and profitability for OMAB in the short-to-medium term.

Despite the improved passenger traffic in the first quarter, we found first quarter cash and cash equivalents disappointing due to dividend payment. Moreover, the increase in passenger traffic is mainly driven by domestic passengers. Without considerable growth in international traffic, it would be difficult for OMAB to post a strong commercial growth. Finally, after the sell-off in the beginning of the year, the stock recovered considerably and the current valuation does not seem to be that attractive anymore.

OMAB is trading at 13.5x our 2008 EPS estimate. This is below the industry mean and median P/E multiple. All considered, we reduce our target price from $22.50 to $17.25. We project that in the following months the stock will trade with a 2008 P/E closer to the industry median of 14x.

Read the full analyst report on OMAB