Is the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price a buy after falling 28% in just March 2020?
If you look back a little further you'll see that the infrastructure giant's share price has actually dropped by 36% since mid-January as China was battling the outbreak and Chinese passenger numbers were expected to drop.
Sydney Airport is obviously being heavily affected by the wipe-out of air passenger traffic. In its February 2020 passenger update it said that total passengers were down 9.3%, with international passengers down 16.8%. Chinese and South Korean passengers were down 72.4% and 34% respectively.
During March passenger traffic has dropped off a cliff with most international flights cancelled. And Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) have cancelled a lot of their domestic flights as well.
How's Sydney Airport meant to make money in this type of situation? Well, it's difficult. Quite a lot of its earnings comes from passenger volumes.
In a recent update the company said that it is confident in its balance sheet and liquidity position. Its average debt maturity has a tenor of over six years. It has unrestricted cash of over $370 million and $1 billion of available undrawn bank facilities from over 10 domestic and large global banks. It also has around $600 million of new USPP bond market debt which is due to be funded in June 2020.
Combined, those sources of funding more than cover the $1.3 billion of expiring debt over the next 12 months. The next maturity after that is $200 million which is due in November 2021.
Despite that position, Sydney Airport is reviewing its capital expenditure program for 2020. It's only going to continue the critical projects and defer the rest until further clarity is reached. It won't be spending $350 million to $450 million in 2020. All discretionary spending is being eliminated by the company as well.
Is Sydney Airport a buy?
Travel won't be shut forever. But I don't think passenger volumes will return to normal straight away either as soon as air travel is opened up again.
However, interest rates in Australia and the US are very low. This, in theory, should increase the value of Sydney Airport when things do get closer to normality. It could be worth a contrarian buy if you've wanted to own it for a while.
It could be a good buy for brave investors, but it's uncertain at this stage how long air travel will be affected. I think there are easier share bargains out there to buy.
