MENU

Why this broker just downgraded Sydney Airport Holdings Pty Ltd (ASX:SYD) to sell

The nosedive in the share price of Sydney Airport Holdings Pty Ltd (ASX: SYD) may not be over as the airport operator has become the latest to be added to our country’s regulatory hit-list.

It’s time to bail out of the stock, according to Credit Suisse who has downgraded the stock to “underperform” from “neutral”. That call contributed to the stock’s 3.3% plunge yesterday to $7.05 and it will have to fall more before it will attract the attention of bargain hunters.

The Productivity Commission has launched a 12-month inquest on the economic regulation at Australian airports and it looks ready to remove the light-touch approach regulators have had on these monopolies.

The airline industry peak body is pushing for change that could lead to lower aeronautical charges at Sydney Airport ahead of the expiry of an agreement between our country’s largest airport and international carriers in mid-2020.

The regulatory uncertainty clouding over Sydney Airport comes at a time when global bond yields are trending higher. This is a drag on the value of the stock, which is regarded as a bond proxy. When yields rise, the price drops (and vice versa).

The attractiveness of Sydney Airport’s dividend yield and growth is under threat.

“Dividend growth for the next five years (CSe 6% CAGR) is likely to be lower than growth in the past five years (a 10.4% CAGR) due to cash taxes becoming payable and higher capex,” said the broker, which has a $6.75 price target on the stock.

“We expect management to smooth the dividend growth to avoid any decline post 2021. We cut dividend estimates by 5% and 3% in 2019 and 2020.”

Sydney Airport has been a favourite among income-seeking investors for its dependable dividend payouts and its exposure to the Chinese tourism boom. These tailwinds won’t be enough to keep the stock in investors’ good books unless the market loses its appetite for risk in a big way.

Sydney Airport isn’t the only stock facing regulatory pressure. Fellow infrastructure owner Transurban Group (ASX: TCL) is under scrutiny by a Queensland parliamentary enquiry as allegations of fee gouging are being aired in the media.

Our nations largest financial planning group AMP Limited (ASX: AMP) and our biggest banks including Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) are also being dragged over hot coals by the Banking Royal Commission.

It just doesn’t pay to be big in this climate.

On that note, there is an emerging stock that the experts at the Motley Fool are very bullish on. The stock has already outperformed the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in FY18 but they believe it has more room to run.

Click on the free link below to find out what this stock is.

The ASX small cap up 285% with no sign of stopping...

One Australian company has developed a state of the art device that's revolutionizing hospitals all over the world. Even better, this device is so profitable that the company rakes in 90% margins. That's a lot of cash. So no wonder the stock's up 285% since 2008 - with no signs of stopping...

To discover the name and code, simply click the link below. You'll discover our expert's #1 medical technology pick... and you can decide for yourself whether to get invested today.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.