Grupo Aeroportuario Del Sureste (ASR-NYSE, $281.27) Reports for Q4, 2022.

(All figures are reported in US dollars unless otherwise stated and are converted from MX pesos at the exchange rate of 1 MX pesos = $.0514 USD)

ASUR, the operator of the Cancun International Airport and other regional airports in Mexico, as well as the operator of the San Juan Puerto Rico Airport and several airport concessions in Columbia SA, reported fiscal results for the fourth quarter of 2022.

In Q4, revenues came in at $303.2 million US. EBITDA was $227.6 million US, an EBITDA margin of 75.3%. Net profits were $131.6 million, a net profit margin of 43.4%.

When compared to Q4, 2021, revenue was up by 23.4%, EBITDA up by 34.8% and net profits up by 27.2% respectively.

For the full fiscal year ended December 3st, 2022, ASUR generated $1.163 billion US in passenger revenues. EBITDA earned was $833.2 million, an EBITDA margin of 71.7%. Net profits were reported as $513.31 million US for 2022. The net, after tax profit margin for 2022 was 44.1%

When compared to fiscal 2021, revenue was up by 44.7%, EBITDA up by 57.3% and net profits were up by 66.9% respectively.

2023 will be the year of more normalized earnings growth.

I have read, in various investment media reports, that 2023 passenger growth, based upon January reported traffic figures, looks to be improving at the same torrid pace as was reported during 2022. Such extrapolation is likely to be badly in error, due to the timing of Covid-19 lockdowns and the lifting of lockdowns by region. During 2022, the real explosion in traffic patterns took place very late in Q1.

January (reported), February (pending) and potential March figures for 2023 in Mexico, while likely to demonstrate passenger growth rates capable of fooling investors into an assumption that traffic growth in the high 20% range-low 30% range, year over year, represents a foregone conclusion; those assertions should be taken with a grain of salt. Anyone who assumes the 2022 traffic growth of 17 million throughout the entire airport network of ASUR, can replicate additional throughput of 17 million + person this year is, frankly, too far out on a limb to be credible.

For Q1, the comps are still remarkably easy, don’t be fooled by just one month of data in 2023, as are apparently some investors. Once Q1 of 2023 has concluded, the true year over year normalized growth patterns will begin.

Columbia does not have the same level of tourist traffic and their international passengers’ departure destinations did not mandate the same draconian lockdowns as some key countries that are meaningful to Mexican airport operators.

So, Columbian normalized traffic patterns for January demonstrate a truer sense of what year over year comps may look like for the entire multi-country airport system. In January of 2023, total passenger growth in Columbia was 16.6%, still remarkable on a truly normalized basis, but not the stuff of heady dreams.

And, at some point, rising interest rates will start to impinge upon certain travel plans by those holding too much floating rate indebtedness. People might consider holiday travel to be a right, not a privilege, but a potential Fed funds rate of 6% and mortgage rates closing in on 7% will certainly weigh in on the matter.

Investors will also need to keep their eyes on the value of the Mexican pesos vs the US dollar in 2023.

The Mexican peso was one of the few currencies globally in 2022 to have appreciated against the US dollar. International travel to the airports operated by ASUR overwhelmingly arrive from the US. This produced USD revenue that is converted to Mexican pesos on financial statements and ultimately is restated back to USD for comparison purposes. Forex losses in Q4 of 2022 reduced profits by $.29 US per share.

Thus far in Q1, 2023, the Mexican peso has been on a tear, up 6% in the quarter against the greenback and will impact USD reporting yet again. There is an element of natural hedging within ASUR as domestic revenues are ultimately restated to USD for an EPS calculation on the ADS shares but international tourists spend far more in the airports than do domestic passengers and that must be considered in the revenue picture.

All in all, the fiscal year end report was largely better than my expectations and certainly better than most were modeling, given the appreciation of the Mexican peso against the US dollar.

Net debts were reduced to just $104 million by the end of 2022. Capex will be lighter in 2023 than last year and free cash flow generation could perhaps even sustain a repeat of the 2022 dividend payment; last year’s payments included a one time amount from retained earnings and should not be considered as a normalized figure.

With a limited capex plan, ASUR could find itself in a net positive cash position by the end of 2023, unless they choose to expand further in some fashion.

The Columbian airport operations continue to improve revenue and EBITDA figures at a pace that, more likely than not, surpass the Puerto Rico airport concession by early 2024 in terms of overall profitability. Taking into account the fact that ASUR invested less than 1/3 the amount for the Columbian concession as they did in Puerto Rico, Columbia was a very astute market to enter.

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