Grupo Aeroportuario del Centro Norte S.A.B. de C.V. (OMAB)



Grupo Aeroportuario del Centro Norte S.A. de C.V. operates and manages 13 international airports in the north and central regions of Mexico. The company's airports serve Monterrey, M xico's third largest metropolitan area, the tourist destinations of Acapulco, Mazatlan, and Zihuatanejo, and nine other regional centers and border cities. Since its inception in 1998, the company has been focusing on quality aeronautical and commercial services to passengers, airlines and others customers, achieving high standards of management and generating solid financial performance. Since 2000, OMAB has had the support of two strategic investors with significant experience in the operation of infrastructure and airport services: Empresas ICA, Mexico's largest engineering, procurement and construction company and A roports de Paris, a leading European airport operator.

The company has two sources of revenue: aeronautical services and non-aeronautical services. Revenue from its aeronautical services is earned from passenger charges, landing charges, aircraft parking charges, charges for airport security services, and charges for the use of passenger walkways. The company's revenue from non-aeronautical services is earned from the leasing of space in its airports to airlines, retailers, and other commercial tenants access fees collected from third parties providing complementary services at its airports and related miscellaneous sources. The company's principal source of revenue remains passenger charges, which are collected from airlines for each passenger. Passenger charges are automatically included in the cost of a passenger's ticket and are generally collected twice monthly from each airline. Below we can see the passenger traffic per airport during the first nine months 2007:

OMAB operates a well-balanced and diversified portfolio of airports in northern and central Mexico. The company has been posting good results in recent years, investing in the improvement of the terminals and increasing the commercial activity within the airports. We believe the commercial revenues in the airports remains the most important source of growth for the airport companies. In this sense we remain very encouraged by the company's strategy called OMA Plaza, a retail concept that ensures that restaurants, shops, banks, and other stores offer passengers an enjoyable experience at the company's airports.

During 2006, it was signed a bilateral agreement between Mexico and the U.S. That agreement increased from 2 to 3 the number of carriers of each country eligible to operate certain routes. The agreement came into force in July 2006. Thus, 2007 is the first year after the agreement and results have been positive, as we can see from the continued traffic growth during the first nine months 2007. Currently, the main source of traffic growth remains the new airlines (Interjet, Volaris, Avolar, VivaAerobus, Alma and Aladia) that are develping new markets. In 2007 a total of 23 new routes were opened, only VivaAerobus opened 8 new routes.

The Monterrey airport is the most important source of income for OMAB, representing over 45% of the company's revenues. The company has been investing in the construction of a terminal B at the Monterrey airport. At this moment, 50% of the foundations and structures are already completed, the terminal is expected to be operating by the forth quarter 2008. The new terminal will increase the Monterrey airport capacity by 1.5 million passengers per year, adding 2,000 square meters of new commercial areas. We understand that the expansion of this airport will be a major development in the following years, which will enable OMAB to increase both aeronautical and non-aeronautical revenues in the short-to-medium term. Additionally, the company has other expansion projects going on, during the first nine months 2007 capital expenditures reached US$ 38.5 million, an increase of 85.4% as compared to the previous year. We believe those investments will add capacity and profitability for OMAB in the short-to medium term.

The less positive economic environment in the U.S. as a result of the subprime mortgage system crisis, may affect the Mexican economy in the following quarters since both economies have very strong ties. We have to admit that in the last months the likelihood of a recession in the U.S. in 2008 has been increasing, in such a situation the Mexican economy would be affected. This is particularly concerning if we consider that most of the recent traffic growth has been focused mainly on domestic passengers. Nevertheless, after the recent sell-off we believe the company's valuation is now very attractive if we consider the potential earnings growth in the future.

Finally, we were encouraged by the company's third quarter results, which included a huge growth in passenger traffic, mainly domestic traffic, increasing revenues, tight cost control, improved EBITDA and sound net income. We believe the company will continue to deliver solid results in the very short-term. In fact, during the fourth quarter 2007 passenger traffic figures were highly encouraging. On October 2007 total passenger traffic was up 21.5%, on November it was up 21.4% and in December it increased 20.6%. We also found it positive that on August 31, 2007, the company announced the beginning of its share repurchase program. The total repurchase program reaches MXN$ 400 million (US$36 million), of which MXN$100 million (US$3.6 million) are expected to be used in 2007. All considered, we are changing our current recommendation on OMAB from Hold to Buy.


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