Gaining traction: Sydney Airport’s (ASX: SYD) stock rose by about 0.85% on May 07, 2018, after gaining traction in the market. There has been a rise in global travel, rise of the low cost carriers and enhanced non-stop destinations in 2018 that seem to be supporting the group. The group also intends to have opportunities coming in from the underserved markets with growth in core aviation. While redevelopment of T1 retail is essentially complete, the core T3 retail is being repositioned for opportunities post 2019. However, insufficient bilateral capacity seems to be limiting the growth of carriers to some extent.
 

2039 Master Plan (Source: Company Reports)
 
Meanwhile, the ability to generate strong cash flows and earnings growth from passenger volumes have helped the group seek better credit ratings from S&P Global and Moody’s Investors service. SYD has a significant liquidity with over $1.5 billion in cash and undrawn debt facilities. Given the developments and capacity focused projects, the group however expects its CAPEX to be $1.3 billion - $1.5 billion over 2018-2021 with 2018 CAPEX to be $380 million and $420 million.
 
In a latest media update, there is news that the upcoming federal budget will reflect an amount of $400 million for spending on freight rail for easing traffic around Sydney Airport. This is said to be established through duplication of tracks on the line to Port Botany. Moreover, Australia that aims to spend about $75 billion on infrastructure in the next 10 years, will indicate about another $24 billion in the budget to be directed towards infrastructure.
 
As a result of the above positive scenario, SYD stock has risen 5.82% in three months as on May 04, 2018, but is trading at a high P/E. Therefore, we give an “Expensive” recommendation on the stock at the current price of $ 7.150.
 

Sydney Airport Traffic Performance March 2018 (Source: Company Reports)

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