Why we chose Sydney Airport as our primary re-opening trade
On Monday, Sydney Airport (ASX:SYD) was the recipient of an unsolicited, indicative, conditional and non-binding proposal from a consortium of infrastructure investors including IFM, QSuper and Global Infrastructure Management for $8.25 per share. The bid represents a 42 per cent premium to the last close price, albeit remains at a discount to its pre-COVID-19 share price while being approximately 20 per cent higher than most recent peaks of around $6.90 per share reached in June and November last year.
The Montgomery Fund has held Sydney Airport as a top 10 position for the past financial year, accumulating a position during March and April while also participating in the 1 for 5.15 capital raising in August last year. The stock has bounced around over that time, initially surging in June when all re-opening trades were heavily bid (despite no vaccine!), and once again in November with the positive vaccine announcement from Pfizer / Moderna.
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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Trent Russell
:
Hi Joseph,
I was wondering if you could give us an update on Sydney Airport, is this a company to remain invested in? If it takes an offer to go private what happens for shareholders?
Thanks
Trent
Joseph Kim
:
Hi Trent,
The update is that the Sydney Alliance Aviation consortium has lifted its offer twice from $8.25/sh to $8.75/sh and has been granted non-exclusive Due Diligence as a result.
I believe there are good reasons to hold on to Sydney. You have a high probability of success at the $8.75/sh price – which is ~6.5% total return, or ~10-12% annualised – at today’s price.
Then if for whatever reason the bid does not proceed, you are exposed to a re-opening scenario where international borders will likely re-open in the next few months. This helps to underpin the medium-term valuation profile back to pre-COVID levels, albeit with some reopening turbulence likely in the short-term. It’s worth noting that most large travel stocks are trading well above their pre-covid Enterprise valuation.
Hope that helps Trent.
Trent Russell
:
Thanks Joseph, yes it does…
Roger
:
I am trying to interpret the fund’s actions on Sydney airport. Did you sell these shares in part or whole? Did you accept the offer? The report is too subtle for me to interpret.
Please explain ( to quote Pauline Hanson)
Roger Whalan
Joseph Kim
:
Hi Roger,
We have sold a part of our holding to manage our exposure but believe a better price reflecting SYD’s value is likely to be realised over time.
Thanks
Chris
:
And Roger, this is a prime example of “It’s OK to say No” (9 June 2021) and I repeat my comments from that, again.
In my opinion, it will be a done deal because it will be at least 12-24 months before the company comes back to the level of profitability it was before COVID-19. That’s a long time to wait, and does management have that patience to, or the tenure on their contract to, to get to that level of profitability again and see a rise in the share price back to what it used to be ?
Time will tell.