TAV: Transport

THE COMPANY: TAV Airports Holding was established in 1997 for the purpose of building and operating Istanbul Atatürk Airport (IAA) from 2000-05. With a market share of 41%, it is Turkey’s leading airport operator, managing three of the country’s largest four. In addition to IAA, which is one of the busiest airports in Europe, TAV operates the Ankara Esenbo ğ a, Izmir Adnan Menderes and Antalya Gazipa ş a airports. Elsewhere, it operates the airports of Tbilisi and Batumi in Georgia, Monastir and Enfidha in Tunisia, Alexander the Great and St Paul the Apostle in Macedonia, and Prince Mohammad bin Abdulaziz in Saudi Arabia. TAV is also active in branches of airport operations such as duty-free sales through ATU, food and beverage services through BTA, ground handling services through HAVAfi, information technology, security and operation services. As the company generates revenues through these areas, it is of course dependent on passenger figures. Following a sharp rise in 2010, growth in Turkish traffic slowed in 2011. The figure was 118.4m at year-end 2011, for year-on-year (y-o-y) growth of 14.2%, versus 21% in 2010. Aggressive capacity additions that exceeded demand growth deteriorated load factors and depressed ticket prices in 2011. In addition, companies – especially Turkish Airlines – could not reflect rising oil prices in their fares, which reduced profitability.

TAV’s total 2011 traffic rose by 11% y-o-y to 52.8m: domestic traffic grew by 14% to 20.7m and international traffic was up 9% to 32m. In 2011 the major contribution to growth came from IAA, which is the source of 50% of TAV’s revenues, as total traffic reached 37.4m, at a rate of 17% y-o-y. International traffic grew by 17% to 23.8m, and domestic traffic rose 15% to 13.6m. Turkish Airlines’ new routes, increasing load factors – thanks to promotional campaigns, new routes and an increase in the number of long-haul aircraft, which carry more passengers – as well as the entrance of new airlines are the main reasons behind IAA’s growth. Traffic at Ankara and Izmir grew by 10% and 16% respectively. Traffic at Ankara and Izmir was 8.5m and 2.5m respectively. Passenger traffic in Turkey grew by a compound annual growth rate of 13.3% from 2002-11.

Aeroports de Paris (ADP) purchased 38% stake at TAV Airports at TL11.50 (€4.89) per share, implying a market capitalisation of $2.3bn for the company. According to the purchase agreement, current top management and the board's chairman commit to remain until 2021. Since ADP serves as an airport management company at 25 airports worldwide, the partnership may create significant new businesses for TAVHL’s service companies including HAVAfi, BTA and ATU, as ADP do not offer such services. The combined entity, which will manage 37 airports, will be in a stronger position to win new tenders. TAVHL is keen on winning the renewal tender for Istanbul’s main airport, scheduled for 2021. TAVHL will have the priority to participate in new tenders in the region, while ADP will have the priority in Europe and Latin America. There will be no geographical limitations for TAVHL’s service companies.

TAV will pay dividends in 2012 from its 2011 profits.

We have calculated a 2.5% dividend yield for 2012, and expect solid growth figures for the year. In line with our 67.5m (up 30% y-o-y) total passenger estimate for the financial year 2012, we forecasted consolidated revenues of €1.04bn, up 21% y-o-y, driven mainly by double-digit international traffic growth at IAA, higher duty-free spending, the addition of Medina and Izmir airports, and support to HAVAfi revenues from Turkish Ground Services and North Hub Services operations.

Our 2012 EBITDAR and EBITDA estimates of €484m and €315m suggest 47% and 30% respective margins.

We expect higher operational profitability in 2012.

Appreciation of the euro against the lira is an upside opportunity for TAV. Some 49% of its revenues are euro-denominated, against 33% of its costs. IAA captures a 45% share of TAV’s valuation. Any negative event affecting IAA’s passenger traffic, such as the construction of a third airport in Istanbul before 2021, when TAV’s concession ends, or a contraction of Turkish Airlines’ traffic growth, will of course create pressure on the stock.