Could Sydney Airport’s bricks and mortar be the key to its value?
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Today, shares in Sydney Airport are swapping hands for $7.86. That represents a 0.64% gain on yesterday’s closing price.
However, the Sydney Airport share price is still a way off the $8.25 per share offer proposed by a consortium of infrastructure-focused investment and super funds.
The consortium is made up of IFM Investors, QSuper, and Global Infrastructure Partners.
It goes without saying QSuper is a super fund. IFM Investors also has its finger in the super pie – it’s owned by a group of super funds.
But why would super funds, which, by their nature, are focused on growth and returns, lob such a massive offer at the embattled Sydney Airport? Let’s take a look.
Why do super funds want Sydney Airport?
According to an opinion piece by Karen Maley, published by the Australian Financial Review, Sydney Airport is likely more valuable to super funds as infrastructure than as an airport.
If they get hold of Sydney Airport, its share price won’t mean much to them. In fact, it is expected to be delisted if the consortium’s acquisition is settled.
So what’s the point? According to Maley, it’s being considered by the consortium because, right now, there aren’t many great investments out there for super funds.
Australia’s record low interest rates have created a challenge for investors looking for assets that offer decent yields.
Additionally, a potential lift in inflation rates could see bond yields rise and result in losses for super funds invested in bonds and equities.
Luckily, the consortium of investment funds may have found an answer to such a challenge, and that is infrastructure. Unlisted infrastructure assets have far less volatility and can be seen to be better investments in times like those we currently face. As Maley says:
Super funds typically use independent valuers to determine the valuation of the particular asset, using discounted cash flow analysis.
The discount rate is usually closely tied to the long-term government bond yield. And that means when bond yields go down, the value of the asset rises, and vice versa.
The Sydney Airport share price reached an all-time high of $9.20 per share in late 2019. This was only months before the pandemic reached Australian shores.
Thus, the consortium is likely taking advantage of the pandemic dampening travel says Maley. This is a trend she predicts will continue for the foreseeable future.
Sydney Airport share price
The Sydney Airport share price has been boosted in the aftermath of the consortium’s offer. It soared 33% the day it was announced to the market, and has managed to hold onto the gains.
Right now, the Sydney share price is 22% higher than it was at the start of 2021. It has also gained 49% since this time last year.
The airport has a market capitalisation of around $20.9 billion, with approximately 2.7 billion shares outstanding.
Should you invest $1,000 in Sydney Airport right now?
Before you consider Sydney Airport, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Sydney Airport wasn’t one of them.
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*Returns as of May 24th 2021
Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.