A Bullish Outlook For Latin American Airlines - Stephen Trent - Citi Investment Research And Analysis
February 22, 2011 - The Wall Street Transcript has just published Transportation & Logistics Report offering a timely review of the Transportation sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
Stephen Trent covers the Latin America aerospace and transportation sectors for Citi Investment Research & Analysis. Mr. Trent was promoted to Lead Analyst in early 2003 and had previously been an integral member of the Latin America cement and construction team since he joined the firm in June 1999. Mr. Trent was nominated as runner-up in Institutional Investor's 2005, 2007, 2008, 2009 and 2010 polls for the aerospace and transportation sectors in Latin America, and he was named number three in Institutional Investor's 2007 "All-Brazil" poll for the aerospace, transportation and industrials sectors. The Greenwich Survey named Mr. Trent several times in the top five rankings for the Latin American transportation sector, including a number one ranking in 2010. Mr. Trent earned at B.A., magna cum laude, from the University of Pennsylvania and an MBA from the Tuck School of Business at Dartmouth College.
TWST: What's the status of aerospace and transportation in Latin America?
Mr. Trent: I would say for Latin America specifically, you have a couple of different subsector trends. The way we're looking at the space at the moment is we're generally bullish on the airlines, and I think part of the trend there is coming from ongoing wealth creation in places like Brazil, as well as M And A both on a regional and a global level, which I think creates investment opportunities for the airlines as a group.In terms of the Mexican airports and jet manufacturers, I am a bit more cautious. I think that the M And A activity is going to result in fewer airline companies down the road, which could have some ability to charge higher prices. I think these airlines will still service underlying airports; I think they'll still order planes, but instead of robust fleet expansion, I think you're going to see more replacement of old aircraft. I think probably the big global aerospace companies are seeing very robust pickup in jet order activity, whereas order activities for smaller jets have never been as robust as it is for the guys that produce wide bodies.
TWST: Other than Brazil, are there economies in Latin America you feel are well positioned in the transportation sector?
Mr. Trent: Yes, my comments would be consistent with my opening statements about being bullish on the airlines for example. Copa Airlines (CPA) is a name I like. They're based in Panama and a super regional-type player serving Central America, more or less the northern edge of South America and the Caribbean Basin.Looking at Mexico specifically, my lone "buy" rating on a Mexican airport is ASUR (ASR). That's a perfect example of a place which I think is going to continue benefiting from its servicing very attractive locations, such as the Yucatan Peninsula, which is a relatively safe part of the country and it has beautiful beaches. They also have close proximity to world-heritage sites like Chichen Itza and Tulum and Uxmal in the state of Yucatan, so I see advantages to the ASUR airport versus the other two in the group. On the flip side, my comments there are somewhat limited by my coverage, as I don't cover any stocks in Venezuela or Peru or Colombia or Ecuador, even though I have companies I'm covering that do have operations in those markets, but no publicly traded equities.
TWST: You mentioned CCR, Copa Airlines and a few others. Are there other companies that stand out to you right now?
Mr. Trent: Generally speaking, short term we like TAM (TAM) in Brazil - the airline - and on a three- to six-month-type basis, I think, our expectations of M And A are going to drive potential gains in that one. On a 12-month basis, we have somewhat more of a preference for Copa Airlines, the one based in Panama. It's got the best airport infrastructure supporting its fleet growth. It's got the lowest valuation multiples and yet the group's highest margin, so we generally like that combination. We'd also say that the passenger-growth comparables for the first three quarters of this year look fairly easy, which is another place where I think the stock gets supported.CCR, as I mentioned, in addition to ongoing growth, is a haven against inflation. It gives portfolios some protection against underlying inflation in Brazil, not to mention that its trading liquidity is also very strong in contrast to its rivals, so local and global investors might look to that one more than they look at the other publicly traded Brazilian toll road companies. I mentioned ASUR already. Gol (GOL) is another one, the low-cost carrier in Brazil. With that airline, I don't think you are going to get massive passenger traffic growth, but the yields, the airlines' price points, are rebounding. Yield and unit revenues are showing a very healthy trend, which I think bodes quite well for the carrier.
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