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Is the Sydney Airport Holdings Ltd share price a buy?

The Sydney Airport Holdings Ltd (ASX: SYD) share price has fallen 11.8% since its three month high in December 2017.

Shares usually become better value when they fall in price, so it’s worth looking at Sydney Airport to see if it’s a buy today.

Sydney Airport reported quite strongly last month. The company said that its full-year result showed revenue growth of 8.7%, earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 8.3% and guidance of an 8.7% increase to the 2018 distribution.

This growth is supported by record passenger numbers using the airport. The company recorded passenger numbers of 43.3 million, which was an increase of 3.6%. International passengers grew by 7.2%.

Sydney Airport is always investing for future growth too. In 2017 it invested $428.5 million on increasing its aeronautical capacity, refurbishing terminal works, airport access and business expansion such as acquiring the Ibis Budget hotel. Management also gave guidance that capital expenditure will be $1.3 billion to $1.5 billion for the 2018 to 2021 period.

There aren’t many shares on the ASX that are investing as heavily for future growth as Sydney Airport is.

Net debt to EBITDA decreased to 6.7 times and interest cover increased to 3 times from 2.7 times.

The question is, will Sydney Airport be a good investment from here?

In the long-term, the second Sydney Airport could steal some of the air traffic and therefore revenue, although this may be the lower-priced passengers.

In the short-term there is a danger that the rising interest rates in the US will have a knock-on effect to Sydney Airport’s share price, as it already has done over the past year.

The growth in international passengers will need to make up for the above two negatives.

Foolish takeaway

Sydney Airport is trading with a trailing distribution yield of 5.25%. I think Sydney Airport is a pretty good option for investors looking for income, but I don’t think the share price returns will beat the market over the next couple of years because of the rising interest rate.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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