Macquarie Infrastructure Falls To Earth

August 7, 2008

Ackerman - Forbes

The slowing economy and soaring jet fuel costs are causing investors to back away from Macquarie Infrastructure, especially after it reported weak earnings from its airport services operations.

The infrastructure investment fund missed analysts’ forecasts for the second quarter, even as it managed to swing to a profit, and investors weren't impressed. Macquarie shares tumbled 10.2%, or $2.49, to $21.85 on Thursday.

Macquarie Infrastructure, which is the American affiliate of Australia’s Macquarie Group, operates in five segments: airport services, bulk liquid storage terminal, gas production and distribution, district energy, and airport parking. Macquarie is the largest operator of so-called fixed-base operations in the U.S., meaning that it operates gas stations for private jets to fill up on fuel, get de-iced and receive other services.

Macquarie said that general aviation activity in the United States has slowed with the the economy.

Stifel Nicolaus senior equity analyst Troy Ward told Forbes.com that Macquarie's lifeline was its cash flow, which increased 20.6%, to $29.3 million, for the quarter, or 65 cents per share, up from $24.3 million, or 56 cents per share, in the prior year. (See “ Macquarie Infrastructure Flies High.”)

Ward said Macquarie's cash flow increased on the strength of its bulk liquid storage business, which represents 30.0% of the company's earnings before interest, tax, depreciation and amortization, or EBITDA, and the 30 acquisitions it made in the last year, the largest of which was Mercury Air, with 24 locations.

“The net income numbers mean nothing for this company because, like real estate, it has a ton of depreciation, but that doesn’t impact its dividend-paying ability,” Ward said.

Macquarie’s airport parking business is struggling, Ward said, although it’s only 3.0% of EBITDA. As the commercial airline industry has deteriorated, Ward said, there are fewer planes and fewer passengers, which hurts business.

Macquarie increased its dividend to 64.5 cents a share, an increase of 6.6% over the prior year, but the same as paid in the first quarter of 2008. Shareholders of record on September 4 will receive the payment on September 11.

Macquarie reported second-quarter net income of $8.3 million, or 19 per share, up from a net loss of $25.1 million, or 67 per share last year, but it fell far short of analysts’ estimates of 65 cents per share.

Quarterly revenues jumped to $286.5 million, up from $177.2 million, in the prior year.

The company narrowed its annual guidance, increasing the range of its cash available for distribution to $116 to $121 million, from its previous guidance of $114 to $128 million.

Ward said the current stock price is a buying opportunity for investors.