The stock of Sydney Airport (ASX:SYD) has risen almost 19% in the past 12 months and more than 8% year to date. Passenger numbers continue to rise at a moderate pace and also the most recent traffic performance for May was pleasing. Total passenger number have increased by 1.6% over the prior corresponding period with 1.4% growth in the domestic and 1.9% growth in the international market.
The top performing Asian markets were the Philippines, China, Hong Kong, Korea and India with the highest growth rates for inbound passengers.
CEO and Managing Director Kerrie Mather said “Qantas and American Airlines will increase capacity at Sydney Airport by 301,000 seats annually, a 33% increase on the partnership’s current capacity mainland USA.” Sydney Airport aims to attract even more business customers from the U.S. who are expected to save several hours through the recently improved partnership and the resulting direct flights offered by Qantas and American Airlines.
It comes to no surprise that amid such robust traffic numbers Sydney Airport’s share price has been travelling in a stable long-term ascending channel. Since 2009 SYD has climbed 265% following the GFC and recently reached an all-time high of $5.74 on 29th May 2015.
As we are looking at the weekly chart we can see that SYD has been trading on the upper end of its trading range. A logical explanation is that its valuation was inflated by the low interest rate environment and investors’ appetite for income yield. Even though SYD does not offer any franking credits, at the current price the dividend yields 4.7%. The yield is only slightly below the average of the big four banks, which has made Sydney Airport an attractive investment for SMSFs and fund managers alike.
Sydney is the most popular destination for overseas and business travellers and whilst trading conditions for airlines have recently improved, the medium to long-term outlook remains positive. However when it comes to making an investment decision two key rules generally apply:
1. Buy a great business and
2. Buy the great business at a good price.
SYD seems to qualify as a great business given the strong history and balanced outlook, however as we are looking at the technical indicators as well as the valuation, technical consolidation appears due.
Disclaimer: The advice given is of general nature only. Your personal situation has not been taken into consideration. The analyst of this article does not own any shares in Sydney Airport.
Author: Simon Herrmann
Jun 19, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.