Sydney Airport: Going, going,....
About the author:
- Author name:
- By Nathan Lead
- Job title:
- Senior Analyst
- Date posted:
- 13 September 2021, 10:00 AM
- Sectors Covered:
- Infrastructure, Utilities
- The revised bid received today by Sydney Airport (ASX:SYD) seems likely to see the takeover completed.
- Investors can either (a) sell at current prices given risks regarding completion and timing of receipt of proceeds; and/or (b) buy or hold for a c.4.5% return at current prices.
Sydney Airport (ASX:SYD) has received a revised proposal from the Sydney Aviation Alliance. SYD intends to grant the consortium the opportunity to undertake due diligence.
Key details of revised offer
The revised offer price is all-cash non-binding $8.75/s (up from $8.25 and $8.45 previously).
The non-price terms and conditions of the offer are consistent with the previous proposal from the bid consortium. These include UniSuper (c.15% SYD shareholder) reinvesting its equity interest into the unlisted holding vehicle (instead of receiving cash), FIRB and ACCC approvals, and shareholder approval via a scheme of arrangement vote.
Due diligence is expected to take four weeks from entry into a non-disclosure agreement, which will enable the bid consortium to put forward a binding proposal.
SYD’s Boards’ current intention is to accept the binding offer in the absence of a superior offer and subject to an independent expert’s report concluding the deal is in the best interest of SYD’s securityholders.
It looks like the takeover is heading towards a conclusion. We’d be surprised if due diligence unearths any deal breakers given SYD’s public disclosures and the bid consortium’s intimate knowledge of the industry given ownership stakes in other Australian airports. Furthermore, it would be a surprise if there was ACCC and FIRB issues that the bid consortium could not appease.
The bid price implies c.23 EV/EBITDA (FY19A/pre-COVID EBITDA basis). We estimate SYD was trading on c.21x EV/EBITDA (CY20F) in the months leading up to the commencement of the pandemic and a CY19 average of c.19.8x.
Forecast and valuation update
We’ve taken the opportunity to materially downgrade our pax forecasts and retail revenue recovery profile for coming years (given ongoing COVID constraints in SYD’s Sydney catchment), while continuing to assume pax recovery to FY19/pre-COVID levels occurs by FY24. This causes downgrades to our FY21-23F earnings, DPS, and credit metrics, and reduces our standalone valuation by 9 cps to (login to view).
We set our 12 month target price in line with the revised bid price of (login to view).
A higher bid from a counter-bidder.
Bid not proceeding or extended delays in an agreed deal’s completion.
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