Is the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price a buy after the coronavirus selloff?
It's down 25% since 21 February 2020 and down 30% since 20 January 2020. At first investors were concerned about the potential loss of Chinese travellers and now there are less passengers across the board.
In February Sydney Airport experienced a significant decrease of passengers compared to February 2019. Domestic passengers were down 4.5% and international passengers were down 16.8%, meaning that total passengers fell by 9.3%. Chinese and South Korean passengers were the two groups with the biggest declines.
In the first nine days of March, Sydney Airport's provisional data indicates a 25% decrease in international passenger traffic and a 6% decrease in domestic passenger traffic.
At the time of the announcement, Sydney Airport CEO Geoff Culbert said: "Our primary focus remains the health and safety of everyone at the airport, and to keep the airport open and operating. We have detailed continuity plans that give us confidence that we can work through the challenges posed by any potential escalation of the Coronavirus outbreak, and our balance sheet and liquidity position remains strong.
"Our recent bond issue fully refreshes our $1.4 billion of available bank facilities. We will continue to assess and invest in projects that deliver capacity and growth over the long term, and we are heeding the Prime Minister's call to keep investing and to keep people in jobs. We will also continue our disciplined approach to managing operating costs. The changes we made last year will help us to effectively manage through the current environment."
So is Sydney Airport's share price a buy?
It's clear the airport operator is hurting and the next few months could get even worse.
However, it's important to remember that this outbreak is just a one-off issue that will pass. There may be other countries that could soon see larger outbreaks that hurt air traffic even further.
Eventually things will get back to normal. And don't forget that interest rates are now at record lows. When we come through this period shares will look very cheap because of how low interest rates are around the world.
On a trailing "normal year" basis the Sydney Airport distribution is 6.2%. There is an obvious risk that the distribution for 2020 will be cut because of lower passengers, but 2021 and onwards will hopefully see a return to normal numbers.
In two years time this share price may prove cheap and the 2022 yield could be attractive in terms of the RBA interest rate. There will be pain ahead, but it could be a decent brave call for a 3-year outlook. However, investors wanting reliable income this year may be better suited looking elsewhere.
