A few years ago, if I'd have said the official unemployment rate
is below 5 percent, GDP growth is 4.5 percent annually, debt-to-GDP
is 42 percent, and the citizens are generally optimistic, you
probably would have thought I was speaking of the United States.
If I were to repeat the same statistics today, you'd know I wasn't
talking about the United States - but you probably wouldn't know
that I was talking about Mexico either.
Our neighbor to the south is experiencing economic growth,
employment rates, fiscal responsibility and confidence that used to
be distinctions of our great country.
Such enviable economic attributes, whether here or abroad, are
difficult to overlook. This is why I see opportunity in Mexico,
particularly in one company - a monopolist in its market - whose
shares trade as American Depository Receipts (ADRs) in the United
This company's ADRs are negotiable certificates that trade just
like domestic stocks except that your capital gains and dividends
are priced in dollars, not pesos.
The company is Grupo Aeroportuario del Centro Norte, better known
, an aeronautical management company with a market cap of $576
OMA holds concessions to operate, maintain, and develop 13 airports
in Mexico, most of which are concentrated in Mexico's central and
northern regions. OMA makes money charging fees to airlines,
passengers, and businesses for the use of the airports it manages
I find OMA intriguing for a number of reasons. For one, it can be
likened to a utility in that its market is regulated, but it is the
lone supplier in the market. Regulated monopolists are not only
sheltered from many market vagaries, they are usually able to
assure themselves a minimum level of profit.
Unlike public utilities, though, OMA carries a much lower debt
level. In fact, long-term-debt-to-equity is only 20 percent.
OMA is largely a play on Mexico's internal growth and prosperity.
Only three of the airports it manages - Mazatlan, Acapulco, and
Zihuatanejo - are international tourist destinations, and they
account for less than 18 percent of passenger traffic. It's largest
airport, in Monterrey, accounts for 46 percent of OMA's traffic.
Monterrey is one of the three most important cities in Mexico for
commerce and industry, and is Mexico's second richest city behind
Mexico's swelling prosperity isn't so much reflected in total
airline passengers as it is in a willingness for passengers to pay.
In fact, the passenger numbers are relatively flat: OMA estimates
that full-year 2011 traffic growth will be in the range 0.5 to 3
percent over 2010's total passengers of 11.58 million. Revenue,
though, is expected to grow 8 to 12 percent over 2010's $214.2
million, thanks mostly to increased revenue generated per
The recent sell-off of equities trading on U.S. exchanges appears
indiscriminate. Over the past month, OMA has seen its ADR price
drop 17 percent to $13.50. Yes, there are concerns that Mexico's
economy could slow due to falling demand in the United States,
which accounts for 80 percent of Mexico's exports.
In this global economy, no one operates in a vacuum anymore. But I
think OMA is more insulated from U.S. woes than most Mexican firms.
OMA's annual revenue has increased every year for the past six
years - and that included 2008 and 2009, the Great Recession. There
was some minor variance in net income over the time, but the trend
has been mostly arithmetical and up.
The recent sell-off in equities has made OMA a value and an
income-generating opportunity. At the current price, OMA ADRs are
trading at 16 times the 2011 EPS estimate for $0.82 a share, which
easily covers the trailing-twelve month dividend payment of $0.65 a
share. What's more, this payment has been raised each year for the
past three years.
OMA is thinly traded, averaging only 10,500 shares daily.
Therefore, the bid-ask spread varies, but is usually between $0.20
and $0.25. I suggest placing any trades as limit orders (one closer
to the bid price for a buy).
I have found that I am usually able to get better orders with limit
orders than with market orders.
Article Contibuted by Stephen Mauzy, CFA
Lead Research Analyst,
High Yield Wealth
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