Journey to Wealth

Malaysia Airports Holdings - Loses Bid To Acquire Stansted

kiasutrader
Publish date: Mon, 21 Jan 2013, 10:38 AM
THE BUZZ 
 
MAG  (Manchester  Airport  Group)  has  won  the  auction  to  take  over  Stansted  Airport  at  a price tag of GBP1.5bn, far higher than its opening bid of GBP1bn. MAG has been known to be a strong contender amongst the other bidders, Macquarie and MAHB (Malaysia Airports Holdings). MAG  will partner with Australia's Industry Fund Management, which will hold a 35.5% stake in the venture. 
 
OUR TAKE 
 
Phew, a relief. MAHB's failure to win the bid for Stansted Airport is a relief for investors as this would remove any capex and cash flow concerns, which would also take a hit on our DCF-derived fair value. We had been negative about MAHB taking over Stansted given the airport's declining passenger traffic numbers and its heavy dependency on Ryanair, more so  as  the  airline  had  been  persistently  lobbying  for  lower  airport  charges.  At  a  utilization rate of only 60% for the airport, Ryanair accounts more than 70% of the traffic, hence the new owner would have limited bargaining power to push for higher charges.  
 
A reasonable price although on the high end. The price tag of GBP1.5bn represents a valuation multiple of 15-16x Stansted Airport's EBITDA, which is in line with recent similar transactions.  Edinburgh  Airport  was  acquired  at  16x  EBITDA  and  Portugal's  ANA  airport fetched  a price  that  was  15x  its  EBITDA.  But  given  that  there  are  four airports  in  London competing for the airline operators market coupled Stansted Airport's dependency on Ryanair's  traffic,  we  think  valuation  could  have  been  lower.  However,  we  note  that Stansted Airport is the only airport that has the capacity to expand an additional runaway, hence justifying the valuation.  
 
Maintain  BUY.  We  maintain  our  BUY  call  on  MAHB  with  our  DCF-derived  fair  value  of RM8.00  unchanged  as  we  remain  positive  that  its  upcoming  KLIA2  will  drive  its aeronautical revenue further amid resilient traffic growth for low cost travel.

Source: OSK
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