Sydney Airport (SYD) – BUY
|Date of Report||ASX||Price||Price Target||Analyst Recommendation|
|Date of Report|
|Sector : Industrial||52-Week Range: A$6.31 – 7.62|
|Industry: Transport Support Services||Market Cap: A$16,621.0m|
We rate SYD as a Buy for the following reasons:
- Attractive asset with long-dated lease – Sydney International Airport.
- Strong growth in international tourism and domestic travel
- Solid and growing dividend stream – 5-year CAGR of +10.4%.
- New development projects (expand capacity & improve passenger experience).
- Leveraged to a falling dollar (cheaper to visit Australia).
- Diversification into hotels.
We see the following key risks to our investment thesis:
- Bond rates (seen as a bond proxy and rising bonds yields will have a negative impact on SYD’s valuation)
- Downturn in Australian tourism.
- Global calamity leading to reduced international travel.
- Distribution growth or lack of it disappoints.
- Cost pressures / operational disruptions
Figure 1: SYD Revenue by Segment
Sydney Airport (SYD) 1H18 results were largely in line with expectations, posting solid headline numbers with growth being realised across all segments.
SYD saw continually strong growth (+3.3%) in passenger levels, with international passengers increasing +5.5%, and consequently experienced top line growth of +8.1% to $623.4m. Other key points compared to the previous corresponding period (pcp) include:
1. Revenue was up +7.9% to $770.8m (from $714.2m), supported by growth across all businesses
2. EBITDA rose +8.1% to $623.4m.
3. FY18 DPS reaffirmed at 37.5 (reflecting an +8.7% increase on 2017).
In terms of guidance figures, FY18 capital expenditure has been reaffirmed at a range between $380 – 420m.
We maintain Buy recommendation as the stock offers an attractive and growing dividend stream and international passenger numbers remain solid.
- Key 1H18 headline numbers. Compared to the previous corresponding period (pcp):
1. Revenue was up +7.9% to $770.8m and EBITDA rose +8.1% to $623.4m.
2. Net Operating Receipts were up +7.5% to $411.3m.
3. FY18 distributions per stapled security reaffirmed at 37.5 (reflecting an +8.7% increase on 2017).
4. Significant balance sheet flexibility with $1.4bn in undrawn facilities as at 30 Jun-18 and cashflow cover ratio increase to 3.1x (from 2.9x at 1H17).
5. Both S&P and Moody’s upgraded the airport’s credit rating to BBB+/Baa1. Net debt to EBITDA ratio reduced to 6.7x from 6.8x at 1H17.
- On the segments: Over the pcp –
1. Aeronautical Services (45% group revenue) posted +7.6% in revenue growth, owing to strong international passenger growth and agreements for increased international charge which will be used to support continued “capital investment in aeronautical facilities”.
2. Retail (23% group revenue) also delivered solid results, seeing a +8.7% growth rate “following the completion of lease renewals on superior terms for our travel essentials contract and a number of T3 leases”. Positively, all three terminals are fully leased driven by consistent retailer demand, Duty-free continues to trade well, with 85% of T2 pier B currently under construction already leased, with the first staged opening scheduled for December 2018 Christmas period.
3. Property, hotels and car rental (15% group revenue) led revenue growth, which was up +10.9% following the completion of lease renewals, investment in hotels (continued strong performance from Iris Budget and Mantra) and supported by stable 98.6% occupancy rates. Newer, and upcoming developments will likely see this strong growth continue, with car rentals delivering solid performance from new desks leased to Avis Budget Group and newly signed agreements for the opening of lounge operators in Terminal 1.
4. Parking and ground transport (11% group revenue) grew +2.1%, driven by improved performance in online bookings, solid results in both domestic and international priority pickup products, and the opening of new roads and ground transport infrastructure focused on congestion reduction.
- Capital expenditure. 1H18 CapEx totalled $179.6m, and was dedicated to increasing: aeronautical capacity, terminal works, airport access and business expansion. Management has reaffirmed CAPEX guidance of a rage between $1.3 – 1.5bn over the 2018 – 2021 period, with approximately $380-$420m expected to be invested for FY18.
1H18 Results Summary…
Figure 2: Summary of Results and Segments
Source: Company; BTIG
Figure 3: SYD Financial Summary
Source: BTIG, Company, Bloomberg
Sydney Airport (SYD) operates the Sydney International Airport (Kingsford Smith). The company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers. The ASX listed stock consists of Sydney Airport Limited (SAL) and Sydney Airport Trust (SAT1). Shares and units in the Group are stapled.
Recommendation Rating Guide
|Recommendation Rating Guide||Total Return Expectations on a 12-mth view|
|Speculative Buy||Greater than +30%|
|Buy||Greater than +10%|
|Neutral||Greater than 0%|
|Sell||Less than -10%|
Reach Markets Disclaimer
Reach Markets Pty Ltd (ABN 36 145 312 232) is a Corporate Authorised Representative of Reach Financial Group Pty Ltd (ABN 17 090 611 680) who holds Australian Financial Services Licence (AFSL) 333297. Please refer to our Financial Services Guide or you can request for a copy to be sent to you, by emailing firstname.lastname@example.org.
Read our full disclaimer here >
This publication contains general securities advice. In preparing the advice, Reach Markets Australia has not taken into account the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation. Reach Markets Australia and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication. Reach Markets Australia does, and seeks to do, business with companies that are the subject of its research reports. Reach Markets Australia believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by Reach Markets Australia or any of its directors, employees or agents. This publication must not be distributed to retail investors outside of Australia.
It is recommended that you seek independent advice and read the relevant Product Disclosure Statement before making a decision in relation to any investment. Any advice contained in this communication is general and has not taken into account the investment objectives, financial situation and particular needs of any particular person.
Banyan Tree Disclaimer
This document is provided by Banyan Tree Investment Group (ACN 611 390 615; AFSL 486279) (“Banyan Tree”).
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and Banyan Tree is not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Banyan Tree does, and seeks to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Banyan Tree, its associates, officers, directors, employees and agents. Except for any liability which cannot be excluded, Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Banyan Tree is not liable to recipients in any matters whatsoever otherwise recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Banyan Tree does not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Banyan Tree.
This document has been commissioned by Reach Markets Australia Pty Ltd and provided by Banyan Tree Investment Group (ACN 611 390 615; AFSL 486279) (“Banyan Tree”).