The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is having a very undramatic start to the week this morning. At the time of writing, Sydney Airport shares have… done very little so far today. The company is sitting at $7.82 at the time of writing, up just 0.2% on the price it finished up at last Friday.
But still, shareholders don't have too much to complain about. Sydney Airport was (and still is) one of the hardest hit ASX 200 shares from the coronavirus pandemic.
Shuttered international tourism, sporadic and sudden closures of state borders – and don't forget the bans on most Australian leaving the country – have all combined to smash the business model of this airport company.
And yet, Sydney Airport shares today are up 21.7% year to date in 2021 so far. They also remain up 45.8% over the past year. And only 12.85% off of the all-time high share price of ~$9 a share that we saw back in December 2019.
Much of these gains have, of course, come in the past month or so. The Sydney Airport share price climbed a whopping 34% between Friday 2 July and Monday 5 July, and have pretty much stayed at these elevated levels ever since.
This huge hike in Sydney Airport shares came as a result of a takeover proposal from a consortium of infrastructure investors that was publicly released on the morning of 5 July.
COVID woes and takeovers
This consortium, which included QSuper and IFM Investors, offered to buy all outstanding SYD shares at a price of $8.25 a share, at the time a 42% premium on the then Sydney Airport share price.
Even so, the Sydney Airport board subsequently rejected this offer. It stated that the offer was "opportunistic" and "undervalues Sydney Airport and is not in the best interests of securityholders".
Undervalues Sydney airport? Well, it's fairly difficult to come up with a value for Sydney Airport right now, for obvious reasons. This is a strong company holding an asset of enormous intrinsic value (Sydney's only international airport). But also one that has had its business model damaged enormously by a situation which has no end date in sight.
So how do we value the Sydney Airport share price today?
Well, let's start by checking out its most recent numbers. So Sydney Airport delivered its full-year earnings for the 2020 calendar year back in February. These are the most recent numbers we can go off.
So back then, the company reported a total of $803.7 million in revenue for 2020, which was down from the $1,639.6 million it brought in in 2019. In terms of earnings before interest, tax, depreciation and amortisation (EBITDA), Sydney Airport reported $627.8 million for 2020. That was down from the $1,145.5 million from 2019.
Even though these earnings are still very much in the green, the company ended up reporting a statutory loss after tax of $107.5 million for 2020. That was down from the profit of $215 million in 2019.
What is the Sydney Airport share price really worth?
This unique situation makes it hard to value Sydney Airport's shares right now. There are a lot of variables, including the speed of vaccination rollouts (not just in Australia but around the world), what other countries do with their borders, new COVID variants… the list goes on.
There could be a case to be made that the Sydney Airport share price might not be worth the 12.85% discount to its all-time high that it is trading at today. However, long-term investors can also make the case that its valuation prior to the takeover proposal was undervaluing its long-term potential.
My Fool colleague Brooke looked at this question last week. She cited a report in which Credit Suisse analyst Paul Butler stated that the consortium bidders "likely didn't post its best bet. Butler expects to see a higher offer given to the airport shortly".
We shall have to see what institutional investors are ultimately willing to put on the table for this company. As it stands today, this might give us the best idea as to what Sydney Airport shares are really worth right now.
