Grupo Aeroportuario del Pacífico S.A.B. de C.V. (NYSE: PAC) Recent Price: $29.81Market Cap $1.7B 2007 Revenue $343M Net Income $173M FCF $167MMin. dividend yield: 2.9% Est. yield: 5.5-6.0%Intrinsic Value: $50+ThesisThis is the 10th most profitable airport group in the world trading at a compelling valuation due to weakening airline traffic, driven by high fuel prices & slowing economic growth. Company DescriptionPAC owns 50-year concessions to manage 12 airports in Mexico, including Guadalajara, Tijuana, Los Cabos, and Puerta Vallarta. Why Buy?• Low risk, monopoly-type business • Fast-growing industry over time, driven by economic growth, market share gains from busses, low cost airlines • Superior economics – EBITDA margins are 65% and net margins are 40% • Very cheap – trades at a deep discount to historical multiples based on a weak near term outlook Risks• Economic weakness in Mexico or US leads to less travel• High fuel prices force low cost airlines to cut more capacity or bankrupt some carriers • Mexican government tries to steal economics away from the airports• Changing of the long term trend of increasing commercial revenue per passenger• Currency riskIntrinsic value for this company is more than $50. As a comparison, Copenhagen Airports A/S serves under 2 million residents. Its enterprise value is $3.1 billion and it generated $620M in revenue and $165M in earnings last year. PAC trades at a lower multiple but is more profitable and has much more growth ahead of it – Guadalajara alone is home to 5 million people. At $1.7 billion, the company is a steal. Aero-Pac is a premier asset trading at an incredible price. In its focus on the short-term, the market is missing the superior economics and long term growth potential. I opened up an initial 2% position at $27.73. At lower prices I would increase my stake up to 6%. -Andrew
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