How to value Sydney Airport
Many investors regard Sydney Airport (ASX:SYD) as a key defensive asset due to its monopoly over Australia’s main gateway, solid earnings growth and yield. But just how do you value a company like SYD? In part 4 of our analysis, we look at the valuation considerations and a key issue that could impact the future earnings.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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John Davies
:
Buy Auckland Airport – ASX: AIA – instead; they own their land instead of leasing it and their chart is very bullish.
Lester Green
:
Thanks for the series Joseph. Both interesting and educational.
Joseph Kim
:
Thanks for your comments Lester
steven lock
:
Isn’t it a case of trying to prop up the price maintaining dividends using debt ?
Joseph Kim
:
Hi Steven,
There’s no doubt investors are attracted to Sydney’s yield, which is propped up by the use of debt to fund capex (so as to maintain a relatively stable gearing profile). So yes, towards the end of the concession there will be a significant drop off in dividend payments as operating cash will need to repay debt over a period of time – however, the return benefit of bringing those cash-flows forward can be significant for a long-term investor.
The SYD business model allows this capital structure to some degree as the capex is generally underpinned by a relatively bankable commercial rate of return given the demand profile.
Jaco
:
Thank you very much for this series.
Joseph Kim
:
You’re welcome, thanks for reading Jaco.