The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price has fallen heavily in 2020 due to the disruption caused by the coronavirus pandemic.
In afternoon trade on Wednesday the airport operator's shares are changing hands for $5.92. This is 36% lower than its 52-week high of $9.30.
Is the Sydney Airport share price a bargain buy?
While times are certainly hard for Sydney Airport, I think the selloff of this quality company has been overdone and created a buying opportunity for long-term focused investors.
I'm not alone with this view. This morning Goldman Sachs has been looking into infrastructure stocks and has spoken positively about Sydney Airport.
The broker notes that Australian aviation activity has been effectively grounded by the combination border closures and quarantine measures.
And while it expects a material reduction in passenger volumes until the end of June, it believes there will be a staged recovery thereafter. It expects domestic passenger volumes to pick up first and then international travel to follow.
Goldman explained: "We forecast: (i) a 90-95% yoy reduction in domestic activity to the end of June, and a c.20-60% reduction through to the end of December; and (ii) a 90-95% reduction in international activity through to September; a further 30-60 given with the Australian government now guiding to a likely 6 month duration of containment measures, and a c.20-40% reduction for a further 3 months (to end of December); and (iii) staged volume recovery in CY21 back to 80% of CY19 levels."
Though, it has warned that the magnitude of the passenger recovery will be dependent on the relaxation of social isolation restrictions, travel limitations, and whether Australia retains two active carriers. The latter is in relation to Virgin Australia Holdings Limited (ASX: VAH) recently falling into administration.
The broker also believes international markets are likely to remain closed or highly quarantined for some time. It suspects that a resumption of schedules will only include very specific destinations which have demonstrated effective viral controls.
Upgraded to buy.
Nevertheless, the broker believes the market has overcapitalised this industry weakness and has upgraded its shares to a buy rating on valuation grounds.
And while the broker has reduced its price target down to $7.00 from $9.11, this still implies potential upside of 18% for its shares over the next 12 months excluding distributions.
Speaking of which, Goldman doesn't expect an interim distribution to be paid, but has forecast a final distribution of 14.9 cents per share.
Then in FY 2021 it has pencilled in a 29 cents per share distribution and in FY 2022 it expects a 37 cents per share distribution. These forecasts imply forward distribution yields of 4.9% and 6.25%, respectively. Which I think is especially attractive in the current environment.
