The Sydney Airport share price has been smashed in 2020 but is it a strong buy for the future? We take a closer look at what’s to like.
The post Is the Sydney Airport (ASX:SYD) share price a cheap buy? appeared first on Motley Fool Australia. –
It’s been a tough year for Sydney Airport Holdings Pty Ltd (ASX: SYD) shares. The travel industry has been hammered by the coronavirus pandemic and the Sydney Airport share price has slumped 34.3% lower.
However, I think there is still a lot to like about Sydney Airport shares. Here are a few things I’m weighing up to decide if they represent a good value buy today.
Why the Sydney Airport share price could be good value
I think you have to look at Sydney Airport shares as a long-term buy. Clearly, the company’s earnings will be significantly hampered until at least mid-next year but potentially for many years.
It’s best to look at Sydney Airport as an infrastructure company rather than a travel company. The group operates the busiest airport in the country and is underpinned by a blue chip asset base.
Sydney Airport just completed a $1.3 billion capital raising to maintain its balance sheet strength. Shareholders supported the raising with a 93% uptake rate at a 1.7% share price discount.
That flexibility will be the key to managing the COVID-19 impact and preparing for a rebound in coming years.
Traffic numbers have plummeted as state and international borders have been slammed shut. That means any hopes for short-term cash flow are probably misguided.
But if you look ahead, domestic and international travel will return. That means the Sydney Airport share price could be worth a look given the steep discount it’s trading at right now.
No doubt there are risks to buying any travel-related ASX shares right now. However, the company’s assets and operations are vital from an economic and national security standpoint.
Sydney Airport has historically paid a very healthy dividend as well. The long-term outlook still remains solid in my view.
With a market capitalisation of over $14.0 billion, I think Sydney Airport could be a buy. It has the size, strength and strong shareholder backing to withstand short-term challenges.
I think it’s foolish to bet on the Sydney Airport share price as a short-term dividend play. The group’s shares are paying 6.9% on paper but I wouldn’t bank on that in 2020.
Instead, I look at Sydney Airport shares as a long-term infrastructure play. With a strengthened balance sheet and steep share price discount, the Aussie airport company could be in the buy zone.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.