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

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%.

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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.

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