Stock of the Day - Sydney Airport Holdings (SELL)
Today we are covering Sydney Airport Holdings (SYD), seemingly the apple of the eye, which has released some updates recently and has caught our attention.
EBITDA and Distribution (Source – Company Reports)
The half year 2014 highlights came with a bang on growth and momentum with yield expansion. We did note the strong revenue across all of the SYD’s businesses. The Company invested around $95.5 million of capital in capacity expansions and business improvements. The Cebu Pacific’s, international low cost carrier, debut services to Sydney commenced in September. The Company completed its landmark refinancing with regards to diversifying funding sources. Distribution guidance of 23.5 cents per stapled security was reaffirmed with interim distribution paid of 11.5 cents fully covered by net operating receipts. 6.1% EBITDA growth on 2.3% total passenger growth and 4.7% international passenger growth was witnessed which is above SYD’s long term trend. Distribution was also found to be stable and in line with cash flows, as per the Company.
Passenger Traffic (Source – Company Reports)
With the September 2014 updates, the Company announced that the passenger numbers are continually growing at the Sydney Airport with total passengers up 0.9% as opposed to the prior corresponding period (pcp). There was thus an improvement in the load factor in both international markets (1.4% point increase) and domestic markets (1.1% point increase) during September. There was an increase of 2% with regards to domestic passengers’ growth during the month. However, international services witnessed a 1.2% waning in passenger numbers on the pcp.
The Company also announced that there will be an increase in capacity for Qantas on its Sydney-Santiago route by 33% with a fourth weekly service from February 2015. Qantas up-gauged its Sydney-Dallas service from a B747 to the flagship A380 aircraft in September 2014. This led to a seat capacity increase of more than 10%. The non-stop facility between Sydney and Dallas adds to the convenience and efficiency of the service for travelers.
SYD saw a healthy growth in its fourth largest nationality market, with USA travelers up 3.3%. With 4.6% growth of the USA nationality market or over 20,000 additional passengers, SYD has seen favorable results.
Cebu Pacific Air’s services between Sydney and Manila steered 18.0% growth in Filipino nationality travelers to Sydney during the month. There will be an increase in services by Cebu Pacific Air in December i.e., from a four-weekly service to five a week while providing 226,800 additional seats annually on the Sydney-Manila route.
Business Unit-wise First Half 2014 Highlights (Source – Company Reports)
With regards to capital management, significant liquidity and strengthened credit metrics were mentioned. The Company stated that $1.2bn of undrawn facilities are available to cover current liabilities and fund growth capex into 2016. Also, SYD reaffirmed a guidance of $1.2b over 2014 – 2018.
Additionally, the Company has increased A380 capable baggage reclaims belt, widened and improved taxiways B and C to the south of T2 for efficiency increase of the T2 aprons, enhanced capabilities for Aprons T1 including dual door boarding aerobridges etc., and provided additional high Intensity Approach Lighting on Northern runways. The Company is making efforts for bettering passenger experience through technology up gradation by introducing smart gates, self-service bag drop trials, etc.
With regards to SYD’s Commercial businesses, the Company maintains a balanced and diverse revenue base from aeronautical, retail, car parking and property. By virtue of growing passenger spend rates, the Company’s retail revenue grew strongly by 7.4% in first half 2014. Car parking revenues also were driven by the success of the online offering. The Property segment has created new growth opportunities (revenue growth of 6.8% from new leases and rental reviews). Few opportunities entail review options for development of two new hotels and construction of the bridge over Alexandra Canal.
The Duty Free contract is one of SYD’s most important aspect on airport which accounts for ~13% of the total revenue. The current contract expires in February 2015.
Ground Transport Improvements (Source – Company Reports)
Sydney Airport and the NSW Government are investing over $500 million over the next five years. This effort is driven towards improving ground access and support facilities inside the airport boundary including T1 in terms of new flyovers and pick-up area, road network outside the airport boundary near the T1 and T2/T3 grounds.
Western Sydney Road Transport Infrastructure Projects (Source – Company Reports)
With regard to the second Sydney Airport update and outlook, SYD confirmed that the Australian and NSW governments are progressing with infrastructure for western Sydney. For instance, the Australian Government has established the Western Sydney Unit to develop a detailed airport proposal and to come up with a broader infrastructure package. Exemplary specifics include upgrading of Bringelly Road to a minimum of 4 lanes between Camden Valley Way and The Northern Road for which works will commence in 2014/15, and upgrading of Northern Road to a minimum of 4 lanes from Narellan Road to the M4 Motorway for which works will commence in 2015/16. The Sydney Airport has accepted the notice to consult issued by the Australian Government for the development and operation of the Western Sydney airport on 18 August 2014. This consultation is spread over nine months which commenced on 30 September 2014. SYD is examining the business case and evaluating the opportunity; and may enter into a contractual agreement setting out the material terms for the development and operation of the Western Sydney airport. The Company expects this activity to be completed in next two years.
Sydney Airport Daily Chart (Source - Thomson Reuters)
Given the entire time-bound interplay between SYD’s internal efforts with a mix of ups and downs in the middle of Ebola threat and returns from efforts owing to the second Sydney Airport Project, we put a SELLrecommendation for this stock at the current price of $4.49.
Note - The following report was covered in Kalkine Daily on 07/11/2014
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