Amazon to Enter NZ | Sydney Airport Takeover Offer

12 July 2021

Global stocks were quiet overnight with the US markets were closed on Monday for Independence day holiday.

European stocks were higher overnight, with the Stoxx 600 index up +0.3% in a choppy session, with banks leading gains. The only notable news overnight has been in the oil market, where the dispute between the UAE and the rest of OPEC+ has still not been resolved so no production deal has been signed off. 

Closer to home, Amazon Australia has opened to NZ customers who can buy direct from the online retailer. At this stage, this is just allowing the site to ship to New Zealand and therefore is unlikely to have a noticeable impact on domestic retailers. However, it does signal the shift in focus towards New Zealand. With fulfilment centres already in Sydney, Melbourne, Brisbane, and Perth – the next largest urban centre in Australasia is Auckland. 
International competition is a threat we have been cognisant of for a number years, with a number of multinationals having signalled New Zealand launches. Big box retailers, Briscoe (BGP) and The Warehouse (WHS) are most exposed. In saying that, It is also worth noting that Amazon’s impact on Australian retail since launch has been far more muted than originally feared, and that these retailers now have a well-developed online strategy to compete.

Sydney Airport (SYD:ASX)

Sydney Airport (SYD) shares surged +34% yesterday, after receiving a conditional takeover bid at $8.25 per share – a +42% premium to its Friday closing price. The bid came from a consortium of infrastructure investors, valuing the airport at $22.3 billion. The board are analysing the merits of the proposal stating it still falls short of its pre-pandemic highs – indicating they believe it is worth more over the long-term, and will try to encourage a higher bid.

We view Sydney Airport as a strategic piece of infrastructure and welcome the proposal at current valuation we believe it is “fairly” valued being close to its all-time highs, and well above its average pricing price pre-covid valuation. We downgrade SYD to a HOLD, under the basis at the current valuation represents our medium term target. Existing shareholders with a medium-term investment horizon should take some profit around these levels as investors are receiving "tomorrow's "covid-free" travel price today, while long-term investors could continue to hold. although medium-term returns appear limited in our view (absent of a higher takeover offer).

We would not be buyers at current levels (despite SYD trading below its takeover price of $8.25) due to the risk of the proposal being rejected. We still believe operationally the road to recovery is more rocky than initially anticipated so there is more room for share price volatility at current levels – especially with a return to normal travel unlikely over the near-term.



Australia & New Zealand Market Movers

The Australian market was a touch higher yesterday (ASX 200 index +0.1%) helped by Sydney Airport offsetting the rest of the market's losses, as  the market traded in a cautious tone prepared for RBA's meeting today.

The takeover news also boosted long-term outlook for other travel and infrastructure stocks which all traded higher. Energy stocks were also higher as crude priced climbed, after OPEC+ hinted they would make a modest increase in output after it failed to come to an agreement on any supply increases.
Bank and Tech stocks were weaker both being sensitive to today's announcement.
Crown resort shares were down -1.7% after announcing it expects to post a statutory loss this financial year.

The New Zealand market was higher on Monday (NZX 50 index +0.8%). 
Auckland International Airport led the market jumping +5.4%, as the market viewed the airport more positively following Sydney Airport's takeover bid, likewise on the Aussie market local travel related stocks were also higher Air NZ up +1.6% and Tourism Holdings climbing 2%. 

A2 Milk shares were up +2.7%, as it continues to recover, the daily boost attributed to receiving consent from Overseas Investment Office to acquire 75% interest in Mataura Valley Milk.

3 Things Markets will be Watching this Week

  1. Key events this week include Fed's June meeting minutes for their inflation view and bond tapering
  2. In Australia, covid-19 related developments, RBA's meeting on cash rate, building approvals and retail sales data.
  3. In NZ, Goodman Property and Investore Property are holding AGM's, and Summerset's second quarter sales update.
Global stocks were quiet overnight with the US markets were closed on Monday for Independence day holiday.

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