Sydney Airport: Going, going,....

About the author:

Nathan Lead
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.

Event

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.

Analysis

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).

Price catalysts

A higher bid from a counter-bidder.

Risks

Bid not proceeding or extended delays in an agreed deal’s completion.

Find out more

We share the full list of stocks with material upcoming catalysts and share our analysts' comments in our full research note.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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