The shares of Sydney Airport Holdings Ltd (ASX: SYD) edged higher in morning trade after the operator of Australia's largest airport released its half-year results. As expected the company delivered a strong result which saw revenue jump 11.3% to $661.9 million and net profit after tax increase 13.4% to $152.7 million or 12.6 cents per share.
Sydney Airport's share price has been one of the best performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in the last 12 months, climbing by over 32% prior to today on the back of strong passenger growth.
For the six months ending June 30 2016 Sydney Airport saw a 6.7% rise in passenger numbers to a total of 20.3 million. Pleasingly both domestic and international passengers grew strongly at 5.3% and 9.3%, respectively. Not only did passenger numbers rise, but the average revenue per passenger increased 4.3% from $31.30 to $32.70.
I was pleased to see the company managed to hold its operating margin firm at 81% despite a step up in costs related to increased service standards and additional costs with Terminal 3. This strong operational performance led to significant cash flow generation, which is always great to see.
As a result Sydney Airport has found itself in a position to increase its first half distribution by 20% to 15 cents per stapled security. For the full year Sydney Airport upgraded its distribution guidance from 30 cents to 31 cents.
Management had this to say on today's results:
"International passenger growth, up 9.3% for the half year, continues to be a key business driver. Underpinning our international passenger result was significant additional capacity from new and existing carriers, improving load factors and strong demand from a diverse range of markets including Australia, China, USA, Korea and Japan. The domestic market also performed well this half, growing 5.3%, primarily underpinned by strong load factors across both full service and low cost carriers."
Overall I was quite impressed with the results which were largely inline with market expectations. But is it a buy today?
Whilst I do like Sydney Airport and Australia's other leading infrastructure shares Transurban Group (ASX: TCL) and Infigen Energy Ltd (ASX: IFN), valuation is a slight issue for me. In my opinion if you already own them keep on holding onto them, but starting a position on Sydney Airport at 29x annualised earnings might offer limited upside. Instead, I would suggest waiting for a pullback before making an investment.
