It piqued my interest so I took a closer look. Specifically at the effect of the Air revenues cap, as that seems to be the most important thing here. Now I could be completely wrong here, but from what I'm seeing it's a way bigger deal than you're making it seem.
Granted a 10% FCF yield with a 5% dividend yield is not bad, but I think it's important to look at the potential earnings growth, because that's the biggest driver for returns. The Air revenues cap has a huge impact on this. I agree on not using the carry forward (they should run out early next year anyways).
From what I gather the cap is based on their inital paid-in capital (€300M), which is adjusted for inflation annually. The max earnings from the Air segment is 15% of this inflated equity. Which would mean that the maximum earnings growth from the Air segment is in line with inflation. So let's say 3%.
Now of course the Non-Air segment is uncapped, but only accounts for <40% of earnings. So even if this segment has a 20% earnings CAGR the total CAGR would only be 11% (8% + 3%).
Now of course I don't know what kind of growth rates you're anticipating but based on plugging the above in my DCF model (4 years of forecasted growth, 15% discount rate, exit yield of 10%) the stock seems closer to overvalued than undervalued, also consdering their debt.
Hey sorry if I understated the debt I said it was the biggest risk and I still believe it is.
The way I look at valuing this company was FCF yield + growth. This is the kind of company that if I would own, I would plan on holding for a very long time. Focused compounding had a great episode explaining this and it’s more or less how I’m thinking about AIA. On a normal business I would normally want more potential growth but for a company of this quality and stability I’m OK with an over 10% return assuming just one percent growth.
to be fair, there’s not a large margin of safety on this company. But to me the quality of the business helps make up for it. If I was buying a crappy company with growth limited to this, I would not buy it. But company that I expect to have very consistent and good financials, which is rare to find with an almost double digit FCF yield.
While I think it’s pretty interesting at this price point I’m still waiting
Is there a chance that the new Heraklion airport leads to more traffic bypassing Athens? I imagine a lot of travel to Greece passes through Athens for connections - maybe that changes if the new Heraklion airport can accommodate bigger planes and more passenger traffic
Thanks for sharing your thesis!
It piqued my interest so I took a closer look. Specifically at the effect of the Air revenues cap, as that seems to be the most important thing here. Now I could be completely wrong here, but from what I'm seeing it's a way bigger deal than you're making it seem.
Granted a 10% FCF yield with a 5% dividend yield is not bad, but I think it's important to look at the potential earnings growth, because that's the biggest driver for returns. The Air revenues cap has a huge impact on this. I agree on not using the carry forward (they should run out early next year anyways).
From what I gather the cap is based on their inital paid-in capital (€300M), which is adjusted for inflation annually. The max earnings from the Air segment is 15% of this inflated equity. Which would mean that the maximum earnings growth from the Air segment is in line with inflation. So let's say 3%.
Now of course the Non-Air segment is uncapped, but only accounts for <40% of earnings. So even if this segment has a 20% earnings CAGR the total CAGR would only be 11% (8% + 3%).
Now of course I don't know what kind of growth rates you're anticipating but based on plugging the above in my DCF model (4 years of forecasted growth, 15% discount rate, exit yield of 10%) the stock seems closer to overvalued than undervalued, also consdering their debt.
Would love to hear your thoughts.
Hey sorry if I understated the debt I said it was the biggest risk and I still believe it is.
The way I look at valuing this company was FCF yield + growth. This is the kind of company that if I would own, I would plan on holding for a very long time. Focused compounding had a great episode explaining this and it’s more or less how I’m thinking about AIA. On a normal business I would normally want more potential growth but for a company of this quality and stability I’m OK with an over 10% return assuming just one percent growth.
to be fair, there’s not a large margin of safety on this company. But to me the quality of the business helps make up for it. If I was buying a crappy company with growth limited to this, I would not buy it. But company that I expect to have very consistent and good financials, which is rare to find with an almost double digit FCF yield.
While I think it’s pretty interesting at this price point I’m still waiting
I get where you're coming from. I would personally want a higher margin of safety and more growth though.
Is there a chance that the new Heraklion airport leads to more traffic bypassing Athens? I imagine a lot of travel to Greece passes through Athens for connections - maybe that changes if the new Heraklion airport can accommodate bigger planes and more passenger traffic
Hello, great writing! Why are you calling it a Monopoly?