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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