Not a lot of international travel has been going on recently – and it looks likely that there still won’t be much for some time. Unsurprisingly, this has sent the share prices of the 2 airports listed on the ASX plummeting.
Sydney Airport Holdings Pty Ltd (ASX: SYD) and Auckland International Airport Limited (ASX: AIA) have both shed a little over 40% of their value so far in 2020, and are now trading at or near 52-week lows. But with both their share prices now trading sideways for a few days, it appears as though most of the deleterious impacts from the coronavirus may already be priced in.
In an announcement to the market on Monday, Sydney Airport stated that in total it had around $2 billion of available funds to see it through the current crisis, and it was eliminating any discretionary spending and delaying planned capital expenditure.
Auckland Airport has made similar announcements regarding cutting operating costs and capital expenditure and was even forced to suspend its earnings guidance and cancel its interim dividend. These are extraordinary steps for a company to take, but in the face of an unprecedented crisis they are necessary to keep the business alive.
With the world going into ever-tighter lockdown restrictions, the travel and tourism industry has taken a significant hit. Travel agents and booking services like Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) have seen their share prices plummet by well over 70% so far this year, and both are currently suspended from trading.
Webjet is attempting to organise a capital raise, while Flight Centre management have asked the ASX for time to consider how they will respond to the quickly escalating crisis, particularly in the wake of the news that Qantas Airways Limited (ASX: QAN) was standing down 20,000 of its staff.
However, key pieces of infrastructure, like airports, are necessities. Recommending an investment in airports given the current climate is obviously risky. But for investors seeking out undervalued companies in the current downturn, they could be strong long-term plays.
There’s no hiding the fact that the recovery process from the pandemic may drag out for years. However, both airports were growing strongly prior to the spread of coronavirus, and there could be a strong rebound in travel once restrictions are loosened – first in domestic travel and eventually in international travel.
For FY19, Sydney Airport had seen an increase in revenues of 3.5% to a little over $1.6 billion, while EBITDA (excluding some expenses relating to restructuring and redundancies) was up 4% to over $1.3 billion. For the 6 months ended 31 December 2019, Auckland Airport reported a 1.1% increase in revenues over the prior comparative period to NZ$374.7 million.
With further travel restrictions announced by the Federal Government overnight, this is going to be an incredibly tough time for airports like Sydney and Auckland. However, they are vital pieces of infrastructure that will continue to be required once the effects of the pandemic decline.
In normal circumstances, these sorts of investments act almost like fixed income, providing stable cash flows in the form of generous dividends. Obviously 2020 is panning out to be an extraordinary year, and an incredibly tough one for individuals and businesses across the globe. However, once normality is restored and domestic and international passengers are travelling freely again, dividend yields for those who invested at the bottom of markets like this will be astronomical.
We may not be at the bottom yet – but it’s still worth keeping an eye out for potential sources of value in these volatile times.
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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited, Sydney Airport Holdings Limited, and Webjet Ltd. 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.