Sydney Airport Holdings Pty Ltd (ASX: SYD) shares are taking a breather today following a massive 33.9% jump yesterday.
The Sydney Airport share price took flight on Monday after the company received a $22.6 billion all-cash buyout offer from a consortium of infrastructure investors.
Interestingly, the offer of $8.25 per share represented a 42% premium to the company's Friday closing price. This is despite the airport's May traffic performance showing total passengers were 59.1% below pre-pandemic levels.
Looking beyond the lockdowns
The consortium of infrastructure-focused investors consists of IFM Investors, Global Infrastructure Management, and QSuper. Yesterday's bid from the partnership has been interpreted by many as a big bet on Australia's travel future.
While no one really knows exactly when, or to what extent travel will resume – IFM and partners clearly have a positive perspective. Otherwise, the deal would look expensive based on the airport's current performance.
Sydney Airport's 2020 full-year results delivered earnings before interest, tax, depreciation, and amortisation (EBITDA) of $508.1 million. Based on that, the consortium would be paying a 44.5 times EBITDA multiple.
However, it wouldn't be so farfetched for the company's earnings to return to pre-pandemic levels if the global vaccine rollout is successful.
For that reason, it might be more valuable to look at the airport's performance prior to COVID-19. In Sydney Airport's 2019 full-year report, EBITDA came in at $1,336.3 million. That would put the consortium's bid at roughly 17 times 2019 EBITDA.
Furthermore, analysts from Macquarie have said the bid is towards the upper end for airport offers globally. Though the offer remains quite distanced from the most expensive. They commented:
SYD should trade at a premium to peer assets, reflecting it has a high number of international passengers and better duty-free allowances. It has a light-handed regulatory regime, which provides flexibility, and opportunity to grow the nonaeronautical assets base.
Could Sydney Airport be leaving the ASX?
Sydney Airport's chair, David Gonski, has recommended shareholders take no action on the offer. Meanwhile, the board is evaluating whether the proposal aligns with the underlying value of the company. In a release to the ASX yesterday, the company stated:
The indicative proposal has been made during a global pandemic which has deeply affected the aviation industry and the Sydney Airport security price. The indicative price is below where Sydney Airport's security price traded before the pandemic.
Macquarie analysts expect the offer price may be bumped higher in order to unanimously win over the Sydney Airport board.
Looking forward, if the deal were to be approved by the board and receive all the regulatory thumbs-ups, the ASX might have to wave goodbye to Sydney Airport shares. However, we shouldn't get ahead of ourselves. Between now and then, there are still plenty of events to occur.
Finally, Sydney Airport shareholders are now sitting on a 40% share price gain from a year ago. The Sydney Airport share price traded between $5.50 and $6.30 for much of the past 12 months.
