As part of Sydney Airport's ongoing investor relations efforts, I was lucky enough to have an interview with CEO Kerrie Mather and Media and Communications Manager Laura Stevens who did their best to convince me that Sydney Airport Holdings Ltd (ASX:SYD) is one of the most consistent outperformers on the ASX.
First, we'll start with the results:
Sydney Airport shares have grown 139% over the past 10 years excluding dividends, nearly doubling the performance of the ASX 200 and the ASX 50 indices. During that time Sydney has paid out a further $2.13 per share in dividends, which would add another 50% (at today's prices, much more if you bought it years ago) if you'd been a shareholder that whole time.
Here's why:
1) A captive market
Sydney is Australia's largest city and also a premier tourist destination. Just as one does not tour France without visiting Paris, the same can be said for Sydney and Australia. Traffic to Sydney is virtually guaranteed from both domestic and international sources, and as the only airport in town, Sydney Airport is perfectly placed to serve this demand. Most importantly international passenger numbers are growing at a constant rate, thanks to strong overseas interest and a weaker Australian dollar making travel more financially appealing.
2) Close proximity to emerging economies
To the north of Australia are a double handful of countries that are enjoying rapid economic growth – India, Thailand, Indonesia, China, The Philippines, and Taiwan, among others, and Australia's close trade relationships with these nations will see us benefit from a greater than average share of their tourists. Most important is that these economies have decades of growth remaining to catch up to first-world nations like Australia – meaning there's a long runway of benefits to be reaped. Sydney Airport is taking advantage of the changes by providing Cantonese and Mandarin guides and signage at the airport, as well as establishing Memorandums of Understanding with Beijing and Delhi airports in 2012 to cooperatively promote tourism between Australia and these destinations.
3) Low ongoing costs
This one is a little bit of a misnomer, because Sydney Airport spends millions every year on development as part of their Master Plan. What I mean is that Sydney Airport has comparatively low ongoing costs once the initial layout for new facilities has been paid, so its profit growth can increase at a greater rate than revenue. This was seen just last year where Sydney delivered EBITDA of 7.3% on the back of international passenger growth of 4.1%. Furthermore ongoing expenditure drives increasing revenues for future years, to the point where Sydney Airport is expecting to cater to 74 million passengers (up from 38 million currently) by 2033.
Finally, Sydney Airport is ranked as one of the best airports in the world by World Airport Awards, coming fifth in the 30-40 million passenger category, and second in the ANZ region to Auckland International Airport Ltd (ASX: AIA), another outstanding airport enjoying many of the same competitive advantages as Sydney.
When you factor in consistent strong dividends, the right of first refusal to a second Sydney airport, and the capacity to cater for all of Sydney's air traffic out to 2033, Sydney Airport goes from a strong infrastructure stock to one of the best stocks on the ASX full stop. There's sure to be strong interest in airports as the recent budget dampens investor optimism, so if the price looks a little steep, why not check out The Motley Fool's special report; 'Two ASX Stocks Warren Buffet would love':
