Stocks’ Details

Sydney Airport (ASX:SYD)

Regulatory pressure and increase in Debt - Sydney Airport (ASX: SYD) is an iconic Australian Industrial company, whichlately revealed thatDavid Gonski AC will be joining the board of Sydney Airport as a non-executive director from late September 2018. The Group updated the market with its May Traffic Performance which increased by 2.6 per cent as compared to the prior corresponding period (pcp). International traffic grew by 5.6 per cent and Domestic growth was up by 1.1 per cent as compared to prior corresponding period.

Traffic Performance for May 2018 (Source: Company Reports)

The Group is trading at an annual dividend yield of 5.18 per cent and it is expected that it will lower down in the coming time as the pressure of increasing interest rates will impact the capital expenditure and Company is also facing some regulatory pressures. There is this speculation that the Airport Group will lose its monopoly in the city after eight years as it has decided to give up its rightsto build a second airport in the western suburb of Badgerys Creek. Due to theregulatory regulations hovering on the Australian Airport, the airline industry can lower down the aeronautical charges that can impact the scenario. Debt/ Equity Ratio increased from 9.99 in June 2017 to 13.88 in December 2017. The stock is very close to its 52-week high price that is $7.62. One can think of booking some profits atthe current market price of $7.07 by looking at the issues which are prevailing which have led to negative sentiments in the market.
 

Sims Metal Management Limited (ASX:SGM)

Speculation of banning imports of scrap metal in China - Sims Metal Management Limited is a metals and electronics recycler. The Company is engaged in the buying, processing and selling of ferrous and non-ferrous recycled metals and the provision of solutions for the disposal of post-consumer electronic products, including information technology (IT) assets recycled for commercial customers. It was recently announced that Fletcher Building entered into an agreement to sell its 50 per cent stake in the Sims Pacific Metals joint venture to Sims Metals Management for NZ$42 million. Recently, the Company issued 28,277 ordinary shares. It was reported that Group’s sales revenue of A$2,977.0 million in HY18 was up by 24.8 per cent as compared to sales revenue of A$2,384.7 million in the half year ended 31 December 2016 (“HY17”) and statutory diluted earnings per share was 44.8 cents in HY18 as compared to 40.2 cents in HY17.


Capital Expenditure Trend (Source: Company Reports)

Due to the rising demand for steel in China and the closure of inefficient steel mill capacity, steel export volumes have been affected. Cash flow from operating activities of A$131.2 million in HY18 increased by A$17.2 million versus HY17 primarily from higher EBITDA. Further, the Company is considering external growth opportunities that fit into the Company’s strategy, complement its core competencies, and enhance returns. There was a speculation in the market that China can ban the import of scrap metal which can impact the Group in long-term. The stock climbed up by 2.16 per cent as on 13 July 2018 but since one month, the stock was down by 9.82 per cent as on 12 July 2018 and down by 13.74 per cent in last six months. It was reported that 2.90 per cent of the stock was recorded as short (as per the 9 July 2018 Report). So, given the risks, the stock can be avoided or investors who are risk-averse may think about selling at the current market price of $15.58.
 

SYD AND SGM Price Analysis for 5 Years (Source: Thomson Reuters)

 
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