Why the Sydney Airport share price has soared

Posted: 6 July 2021 2:25 pm
News
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Australia’s biggest airport operator’s value has now jumped 21% over the last 6 months.

Shares in Australia’s biggest airport Sydney Airport (ASX: SYD) have been among the most impacted by the coronavirus pandemic. That is, until yesterday. The stock zoomed 37% higher on Monday, and on Tuesday, was still trading marginally lower at $7.75 each, at the time of writing.

What is pushing up the Sydney Airport stock price?

Australia’s biggest airport on Monday received a $22 billion takeover proposal from a group of infrastructure investors, making the likely deal one of the country’s biggest-ever buyouts.

Under the proposal, the consortium comprising IFM Investors, QSuper and New York-based Global Infrastructure Partners, are offering $8.25 for each share of Sydney Airport, a 42% premium on the stock’s closing price last week.

The bid comes as a surprise given that the pandemic has led to a collapse in travel demand. Australia's international borders are likely to remain closed until the middle of next year in part due to a slower than expected vaccination rollout.

Domestic travel has also been severely disrupted by a 2-week lockdown in Sydney after an outbreak of the highly contagious Delta variant prompting all other states to shut borders to Sydney residents during the normally busy school holiday period.

Data for May shows Sydney Airport's international traffic had slid more than 93% lower from the same month in 2019, while domestic traffic was down 39.2%.

Long term bet

The consortium of superannuation funds is clearly taking a longer-term view on the pandemic-battered travel sector.

Australian super funds are loaded with cash thanks to the share market’s post-pandemic rebound, and scouting for opportunities to deploy it amid record-low interest rates.

That was indicated by a statement from existing shareholder UniSuper, whose continued presence in a privatised Sydney Airport has been made a pre-condition by the bidders.

“UniSuper does, however, in principle, see merit in Sydney Airport being converted from a publicly listed company to an unlisted company. UniSuper also has a favourable view of the consortium partners,” it said on Monday.

Notably, the company’s stock price is trading below the offer price, indicating some uncertainty about the proposal, even though Sydney Airport’s board is widely expected to back it, given the significant premium involved.

Before the proposal, Sydney Airport shares had slumped 30% since their pre-pandemic level in March 2020. Post offer, the stock is now up 40% over the last 12 months with most of the gains coming in Monday’s action.

Morningstar analyst Alexander Prineas said in a note that “the proposal has reasonable odds of success, but is likely to be drawn out.”

Think Sydney Airport shares are a buy?

If you are looking to buy Sydney Airport shares, consider investing through an online share trading platform.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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