Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

BAA prospects still attractive

Investment Column

Tom Stevenson
Monday 05 June 1995 23:02 BST
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

Some investors have never got to grips with BAA's split personality, and the market is still unsure whether to rate the airports operator as a transport group, retailer, or even as a utility. It is, of course, all of the above and attractive because of it.

Yesterday's 4p fall in the share price to 483p can be put down to worries about deferred tax charges rather than underlying trading problems. In fact, there was nothing in yesterday's figures to suggest that BAA's two fundamentals - its retail and passenger sides - are faltering at all.

Pre-tax profits rose 13.7 per cent to a record pounds 366m in the year to March. Passenger numbers at BAA's seven airports rose a healthy 7 per cent to 87.7 million, a figure forecast to rise by the same amount this year.

Those captive travellers, generally wealthy, in a good mood and with time on their hands, produced gross revenue from retailing of pounds 513.8m, or a 10 per cent rise in net retail income of pounds 361.9m and a 2.6 per cent rise on a per-passenger basis to pounds 4.14 (pounds 4.04).

The increases look good when it is considered that retailing was hit for much of the year by building work at most of the airports. With such handicaps removed, BAA should be able to achieve 4 per cent growth in spending per head in the current year.

Longer term, however, BAA needs to expand overseas and it was disappointing that nothing new was said about international plans yesterday. Sir John Egan, chief executive, left nobody in any doubt that he would tap shareholders for cash when the right investment turns up, but conditions for such a move could be some way off.

BAA currently runs retailing at Pittsburgh airport in the United States. The operation produces profits of just pounds 1m a year, leading some analysts to question whether the effort is worthwhile, but it does act as a showcase in America. BAA is also close to winning a management contract to run Indianapolis airport.

That would be a big break in a land where airports are tightly controlled, but it is not, of course, the same as owning an airport. For that, BAA's best hope is to aim for the forthcoming privatisation of airports in Australia.

UBS has raised its profit forecast for this year by pounds 10m to pounds 430m. That gives earnings of 31.5p, implying a forward multiple of 15. Given the industry's long-term growth prospects, this is a deserved premium.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in