The Sydney Airport Holdings Ltd (ASX: SYD) share price could rise following the release of its full year profit result.
Here are the key takeaways from the Sydney Airport Holdings Ltd full-year report:
- Operating profit rose 10.3% to $1.1 billion
- 41.9 million passengers moved through the airport in 2016, up 5.6%
- 2017 distribution guidance is set at 33.5 cents, compared to 31 cents this year
- The average cost of debt fell to 5.3%
- The company is aiming to meet the Government's May deadline on the Western Sydney Airport proposal
Sydney Airport CEO Kerrie Mather, who is a large shareholder in the company she runs, said the results reflected a strong performance across all lines.
"We experienced double digit growth in many of our major markets to deliver a diverse passenger base that provides a high degree of resilience," she said. "These included China, the United States, India, Korea, Japan and Indonesia."
Sydney Airport makes its money by charging airlines for its aeronautical services, by offering retail therapy to the near 42 million foot passengers that move through the airport annually, and by providing associated services like car parking and rentals.
"Passengers are enjoying an improved customer experience at T1 International, with better terminal wayfinding for passengers, additional seating closer to departure gates, increased natural light and enhanced retail offerings," Mather added. "In addition, our results included our first full year of Terminal 3, with the financial and operational performance exceeding our business plan."
Aeronautical revenue increased due to a rise in international passenger traffic and an increase in charges. The company said retailing also performed well thanks to the completion of Heinemann stores.
Looking ahead, Sydney Airport sees a real opportunity in Australia's tourism boom over the long-term. However, it also sees opportunity in the shorter-term.
"Our confidence in the outlook for the business supports the guidance for a distribution increase in 2017 to 33.5 cents per stapled security announced today," Ms Mather said.
Given the capital intensive nature of new developments (it's not cheap to renovate an airport!) distributions to shareholders is perhaps the best way to judge the company's financial performance.
In the year ahead the company expects to spend $1.3 billion as capital expenditure. It will also continue its evaluation and lodge its notice of intention for the second Sydney airport, which the government is demanding by May.
Buy hold or sell
Sydney airport is a quality asset and appears very well managed. For those reasons, its shares should certainly be on your watchlist. However, Sydney Airport shares could be subject to a lot of volatility moving forward, especially if interest rates rise higher than many analysts currently expect.
Personally, I wouldn't be comfortable buying Sydney Airport shares until we get a little more clarity over its decision with the Western Sydney Airport.
