Why Sydney Airport Holdings Pty Ltd (ASX:SYD) is bucking the market downtrend today

Sydney Airport Holdings Pty Ltd (ASX: SYD) is proving to be a bit of a safe haven to the market volatility but is the stock really a safe harbour in the upcoming turmoil?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's an emerging trend to this reporting season and I am not talking about dividends and capital returns, although that is one of the key hallmarks to the profit results.

I am referring to power with Sydney Airport Holdings Pty Ltd (ASX: SYD) the latest to announce that it's sourcing alternative electricity supply as it posted its half-year results this morning.

This is a notable trend in the context of the ongoing political debacle and talk of Australia abandoning the Paris climate agreement.

Investors liked what they heard from our largest airport operator with the stock inching up 0.1% to $7.24 in early trade. That's a good outcome given that the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index fell 0.5%.

Mind you, it's Sydney Airport's profit numbers that are getting most of the attention with management posting a 7.9% uplift in half-year revenue to $770.8 million while interim earnings before interest, tax, depreciation and amortisation jumped 8% to $623.4 million.

The airport also reaffirmed its full-year distribution of 37.5 cents per stapled security, which is an increase of 8.7% over FY17.

Strong international visitor numbers that increased 5.2%, higher international charge increases, an 8.9% growth in its retail division and a 10.9% rise in property and car rental revenues have contributed the most to the profit increase.

Like most companies here, Sydney Airport is trying to better control costs, particularly energy. The airport struck a purchase agreement with Origin Energy Ltd (ASX: ORG) and Grassroots Renewable Energy for up to 75% of its current electricity load by tapping into a wind farm near Mudgee.

Management believes the deal will provide "meaningful cost reduction" and the airport's goal of halving its carbon intensity by 2025.

The outlook for Sydney Airport also appears to be upbeat with further growth in passenger traffic numbers in July, although today's results won't silence the critics.

The biggest threat to Sydney Airport is increased regulation with the Productivity Commission reviewing charges at the airport.

There is a political trend towards limiting the powers of industries that are seen to wield too much market power. Just look at the big banks and AMP Limited (ASX: AMP) through the royal commission, premium cap threats on Medibank Private Ltd (ASX: MPL) and the rising risk of electricity regulations on AGL Energy Ltd (ASX: AGL) and Origin Energy.

The yield on offer is also not compelling in my view with Sydney Airport on a yield of around 5%.

I think you can find better value elsewhere and a good place to start looking is below as the experts at the Motley Fool have picked their favourite income stock for FY19.

Motley Fool contributor Brendon Lau owns shares of AGL Energy Limited. 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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »