Security price: $5.52
Industry: Infrastructure
Forecast distribution: 25 cents per security
You might complain about car parking prices at Sydney Airport. But you have a chance to turn that into an opportunity and income stream by investing in Sydney Airport Holdings, which owns the airport.
Sydney Airport is set to continue to benefit from strong passenger growth, particularly from Asia, and it has a history of solid distribution growth which makes it a good option for income investors.
Sydney Airport is one of Australia’s most important pieces of infrastructure. It’s Australia’s busiest airport; last year it ­welcomed some 38.5 million ­passengers.
Since privatisation back in 2002, the company has delivered a 23 per cent annual return to investors, generating consistent earnings and distribution growth.
Helped by its monopoly position, Sydney Airport has so far done a good job of converting passenger growth into profit and cashflow growth.
Its financial performance has been solid. In 2014 EBITDA (a key measure of profits), for example, grew 6.1 per cent on passenger growth of 1.7 per cent.
Sydney Airport does face some short-term headwinds to its international departure numbers, due to a falling dollar and poor consumer sentiment.
But that should be offset by strong growth of inbound Asian tourists, particularly from China and India. Chinese visitors/tourists have doubled in the past three years, and the run rate is now approaching an astonishing one million per annum. There’s no reason to say that couldn’t double again.
Sydney Airport is currently evaluating the opportunity of being involved in a second airport in Sydney. In 2013, the ­federal government announced a second airport would be built at Badgerys Creek in western ­Sydney.
Under the 2002 Sydney Airport Sale Agreement, Sydney Airport has the right of first refusal to develop and operate a second airport within 100km. That means the government must negotiate with Sydney Airport first.
Sydney Airport is analysing the opportunity to operate the airport and a decision is expected next year. The new airport would require significant capital spend, but could provide further growth for Sydney Airport.