BAA cashes in on dwell time

The Investment Column
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The Independent Online
Yesterday's passenger traffic figures from BAA were hardly earth shattering but they do represent a steady trend. March figures were up 11 per cent on the same month last year, following February's 12 per cent advance.

The improvements have provided a welcome boost for the share price, which had been suffering from a period of weakness last year as a result of weak passenger numbers during the hot summer. After bottoming out at 465p in December they have now risen to 547p, up 2p yesterday, and several analysts think there is more left to come.

While March's figures were boosted by pre-Easter traffic build-up, there were a number of strong performances from BAA's seven airports, which indicate underlying strength rather than one-off boosts.

Stansted increased its passenger numbers by 40 per cent due to an increase in Irish traffic and a number of new carriers using the airport. Gatwick also improved by nearly 20 per cent due to an increase in US and European flights. An increase in the number of flights to Africa should also boost Gatwick's figures for March.

The key point is that passenger numbers are only part of the story. Retail spending during passenger "dwell time" is now a significant revenue stream for BAA and accounted for pounds 313m of group net-income at the nine-month stage.

BAA is getting better and better at persuading loose-walleted tourists to part with their cash at its airport shops and has 262,000 more square feet of retail space coming on stream by 1998.

Other issues that had been acting as a brake on the BAA share price also seem to troubling City heads less these days, notably the continuing Monopolies Commission review of airport charges.

Kleinwort Benson has not changed its forecasts and is still expecting profits of pounds 418m for the 12 months to last March, to be reported in June, and pounds 460m for the current year. That puts the shares on a forward rating of 18, dropping to 16. Not cheap, but worth holding.