Airport Valuations April 2015

Notably there are relatively few airport operators world-wide with shares open to public investment; and those that are seem to attract valuations well below levels achievable in private and trade transactions. The European airport groups in the chart top right currently trade on forward EV/EBITDA ratios of around 11 times compared with recent trade and private transactions of other airports at the 15-18x level.

Following the 2008 financial crisis Fraport took three years to before its share price recovered to pre-peak levels — and in the meantime was spending vast amounts on a new runway. It has only recently returned to generating free cash flow but will be shortly embarking on a €3bn new terminal and with profits flat, the shares have flatlined.

Vienna was hit harder in the downturn partly because of concerns over the survival of its base carrier Austrian; but with an acceptance that it may not need to build a third runway before 2022 and with Austrian’s recovery under Lufthansa management the shares have been performing strongly.

The strongest performer has been Zürich — again with a Lufthansa-backed base carrier of Swiss — helped of course by the recent strength in the Swiss Franc.

In the Far East, it is notable that Malaysian Airports has been particularly hard hit by the combined catastrophes of its two base airlines in Kuala Lumpur — MAS and AirAsia.

For investor reactions to the relative value of investments in aviation we show the chart bottom right: an airport can be attractive when an airline is not and vice versa.