Sydney Airport

Trading Close To 52-Week High: Sydney Airport (ASX: SYD) is engaged in the business of Airport Operations and comes under the ownership of SAL Group. Sydney Airport consists of (Sydney Airport Limited (SAL) and Sydney Airport Trust 1 (SAT1). The company contributes significantly to the local and national economies, generating $30.8 billion in economic activity during a year.\


Key Performance Measures – FY18 (Source: Company Reports)

Revenue grew 6.8% in 2018 to $1,584.7 million as compared to the previous year, primarily driven by international passengers and a strong performance from Retail and Property. The EBITDA grew by 7.2% driven by the passenger growth of 2.5%. Moreover, international passenger growth of 4.7% and a strong contribution from Retail and Property had a key contribution to the result reflecting new leasing deals, strong duty free and speciality store performance, and a full trading year from the Mantra and Ibis Budget hotels of the group.

The company continued to strengthen the balance sheet and credit metrics, with its cashflow cover ratio increasing to 3.2x, from 3.0x at FY17, and the net debt to EBITDA ratio reducing to 6.6x, from 6.7x in FY17, with robust BBB+/Baa1 grade credit metrics and significant flexibility with over $1.3 billion in undrawn facilities currently available to cover future debt maturities and fund ongoing investment. Moreover, the debt maturity profile optimised, with less than 15% of debt maturing in any one year. The EBITDA margin stood at 80.9% for the year. Among the key ratios, ROE and Pre-Tax ROA grew by 62.9% and 0.2%, respectively compared to the previous year. The asset turnover ratio also remained almost in line with the previous year FY17.  

On the operational front, the total passengers of the company went up by 2.5% to 44.4 million, with international passengers growing 4.7% to 16.7 million. FY18 for the company remained an impressive year with both international and domestic passenger numbers at record levels.

Looking Ahead: The company is well placed to maximise opportunities and growth. It remained focused on investing in capacity and will continue to deliver on the core business while being flexible and adaptable to changing market conditions. The short-term outlook remains subject to macro-economic conditions, airline pricing and fleet changes. Sydney Airport is a resilient asset and has a proven history of performance and growth across all economic cycles. The company is placed to deliver performance over the cycle.

Moreover, automation will continue to be a key focus as the group begins the first phase of its biometrics rollout. This exciting project will ultimately allow passengers to navigate through airport processes using facial recognition, without the need to present their passport at each processing point. The company provided three-year capex guidance of between $0.9-$1.1 billion for the 2019-2021 period. It expects to invest between $390-$440 million in 2019.

The stock has yielded a YTD return of 14.29%. Stock is trading at price to earnings multiple of 45.98x as compared to its peer median of 20.81x.  Forward EV/EBITDA multiple (NTM- Next 12-Months) for the stock comes in at 19.57x as compared to 13.16x for the peer median, representing overvalued at the current juncture. The company had witnessed decent growth in financials in FY18. Comparing the valuations with its peer group, we are of the view that stock is trading at higher levels, thus, we give an “Expensive” recommendation on the stock at the current market price of $7.590 per share (down 0.132% on 7 May 2019).
 

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