Sydney Airport
Better fundamentals: Sydney Airport (ASX: SYD) has been demonstrating a decent performance lately and its first HFY18 highlighted revenue growth of 7.9% to $ 770.8mn as compared $714.2 mn in 1H17 on account of increase in passengers by 3.3% and 14 (12 being already leased) new retail stores due to open in T2 by Q4 2018. The revenue for aeronautical segment increased by 7.6% while retail segment was up by 8.9%, Property segment enhanced by 10.9%, while only 2% rise was noted for parking and ground segment. Based on the performance, SYD reaffirmed its FY18 distribution guidance of 37.5 cents per share with an increase of 8.7% from FY17 and 10.8% 5yr CAGR. Debt/EBITDA has improved lately with support from cash flow cover ratio.
The group’s performance for October 2018 indicated for more than 3.9m passengers travelling through the airport during the month with international passenger traffic rising to 6.0% and domestic passenger traffic moving up by 1.6%.
Decent FY19 Outlook:The management is expecting a strong growth in revenue in FY19 on account of new Airport Hotel with a capacity of 430 rooms and 70 more rooms being added by IBIS, new Plaza Premium Lounge in T1 terminal by Q2 2019, complete repositioning of T3 to enhance the new retail lease offer from July 2019 and increasing passenger volume focusing more on international passengers as it contributes to 70% of the revenue by improving the overall customer satisfaction. SYD is expected to distribute a dividend of 19 cents in 2H18.
Stock Recommendation: Looking at the fundamentals, SYD has the highest dividend yield of 5.27% when compared with peers (having median yield of 3.23%) and P/E ratio of 43.69, which is quite high.The group has a market cap of 15.61bn AUD, with a Beta of 0.5x. The group’s revenue per passenger and EBITDA margin along with net income margin have been improving. The technical indicators reflect that the group has maintained asupport level of 6.33 AUD and has been trading above its 30 days Simple Moving Average (SMA) along with a major indicator like Moving Average Convergence Divergence (MACD) indicator in positive territory. However, P/E looks quite high. Enhanced segment portfolio with CAPEX plans (including hotels, Premium Lounges, new retail stores etc.), increasing passenger base and improving margins while stock looks at a slightly higher level, we give a wait and watch view on the stock at the current price of $7.100.
Telstra Corporation Limited
Creating Enterprise value with 5G: Telstra Corporation Limited (ASX: TLS) is a telecommunication company which gives a provision of telecommunications and information services that include mobiles, internet, and pay television. Telstra Corporation is in early stage of 5G and they are continuously evolving the technology due to ongoing innovation in every aspects of the ecosystem – whether it’s an operation such as radio access equipment manufacturers, in chipsets and devices. In telco industry they are facing tough stage in the cycle as most operators have been fully rolled out 4G and competition on price has also increased.
Telstra Corporation has made a significant progress in digitizing the whole network. By removing excess data charges on their new consumer mobile plans, they have eliminated a major pain point. They have offered more choices to the customers when creating a home or mobile packaging.
Telstra Corporation has been focusing on 5G technology, which will be transformative for the industry and it will contribute to the future revenue growth of the company. Capacity will be further enhanced through spectral and network efficiency. Management also believes customers will pay more to get access to this new technology and it will enable new revenue streams. 5G will reduce the cost per bit of data travelling over the network.
This kind of approach has consistently delivered financial benefits to shareholders as more customers, more devices and more traffic will be generated in Telstra mobile network. Telstra’s guidance based on 2019 nbn corporate plan has been slated to take care of the reduction in the total income by $300 million, EBITDA by $100 million, and net nbn one-offs less nbn cost to connect by $200 million with no change to free cashflow. In last six months, the share price of the company rose by 10.97 percent as on 6 December 2018. Despite issues from nbn, the group has been managing its customer base well and expects to manage the FY19 performance also. TLS shares traded at $3.080 with a market capitalization of $36.16 billion as on 7 December 2018, and we maintain our “Buy” recommendation on the stock.
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