Auckland International Airport Ltd (ASX: AIA) conducted a strategic review of its 24.55% stake in North Queensland Airport (NQA) with the goal of determining whether it should continue to hold or sell this asset.
NQA comprises the Cairns and Mackay airports of which AIA is a co-investor alongside Perron Investments, The Infrastructure Fund, and the JPMorgan Asset Management-advised IIF Cairns Mackay Investment Ltd.
The results of this strategic review confirmed that North Queensland Airport remains a ‘highly attractive asset’ but whilst AIA stated that it would be comfortable holding the asset, its preference remains to sell.
The reason why it is looking to sell the asset despite being enthusiastic about its future prospects is because the asset is not core to AIA’s business strategy.
Yesterday the company announced that it had ‘encountered strong buyer interest’ and expected to provide a more detailed market update on or before the FY results announcement in February 2018.
The AIA share price was pretty flat on the announcement which suggests that investors are looking to wait until further details emerge to determine what the likely impact of any sale would be. Should the price of any potential sale be high enough, the market would be sure to react positively.
Infrastructure stocks such as AIA and Sydney Airport Holdings Pty Ltd (ASX: SYD) tend to benefit from high barriers to entry and in some cases, operate as monopolies in the regions they serve.
This makes them attractive long-term businesses to own but not always good investments particularly when their quality is fully reflected in their share prices. This has been the case in this low interest environment as investors search for yield.
Sydney Airport is a good example of this with its monster PE ratio of 45. AIA is priced better with a PE ratio of 26 and looks to be the better option between the two. Overall, I’d hold AIA shares if I already owned them.
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The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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