Taxes Back on the Table | Sydney Airport Takeover Lifted

15 September 2021

Global markets had a mixed start to the week overnight, with the US market (S&P 500 index, +0.2%) ending it’s 5 day losing streak. Most sectors were in the green led by energy as commodity prices continue to recover, with OPEC predicting strong demand for crude on a combination of higher consumption and supply disruptions globally. Healthcare and tech stocks were the laggards

House Democrats released their proposal on tax increases which fell short of Biden’s plan, raising another red flag about whether the President would be able to push through his $3.5tn social spending bill. The proposed increase in the corporate tax rate was “only” 5.5 points to 26.5% compared to Biden’s preferred 28% and the top rate on capital gains tax would rise 5 points to 25%, well below Biden’s proposed 39.6%. Over the weekend, Senator Manchin – whose vote will be crucial to pass legislation – reiterated his objection to the $3.5tn spending bill, suggesting that he could agree to something around $1.5tn. We think tax hikes could create a headwind for markets and company earnings, but this is more likely a factor which will play out in 2022, not 2021, and we are watching developments.

Regionally, the woes continue for Chinse stocks. Chinese technology shares tumbled yesterday after a report that officials are seeking to break up Ant Group’s Alipay. 

European Markets were up overnight (Stoxx 600 index, +0.3%) with gains in cyclical businesses lifting the market. 

Sydney Airport (SYD:ASX)

Sydney Airport shares jumped +4.6% yesterday, after receiving another takeover offer from a consortium of investors including IFM Investors.

This new offer is $8.75 cash per Sydney Airport share, higher than the previous offers of $8.25 per share and $8.45 per share which were rejected by Sydney Airport’s board.  The Board will grant the consortium due diligence access on a non-exclusive basis so that the consortium can put forward a binding proposal. The current intention of the Sydney Airport board is to unanimously recommend the offer, in the absence of a superior proposal.

We view Sydney Airport as a strategic piece of infrastructure and welcome the proposal. At current valuation we believe SYD is “fairly” valued being close to its all-time highs, and well above its average price pre-covid valuation. We maintain our HOLD recommendation on SYD, on the basis that the current valuation represents our medium to long term target (at a price similar to pre covid levels).

Australia & New Zealand Market Movers

The Australian market was up on Monday (ASX 200 index +0.3%), supported by a rebound across the resources sector and a rally in Sydney Airport following another increased takeover bid.

Energy shares rose and oil prices bounced back from its recent slip and damage caused by Hurricane Ida. Material stocks were higher as a wide variety of commodities were trading higher recently, including Coal, Copper, Iron and Gold as well as the minerals linked to electric vehicles lithium and rare earths.

At the same time, a rise in bond yields saw real estate and tech shares lag the market reporting minor losses. Pallet logistics business Brambles shares fell -0.5% after full year guidance came in below market expectations during its investor day.

The New Zealand market was up yesterday (NZX 50 index, +0.8%) despite extending Auckland’s strict level 4 lockdown being extended for another week – hinting it “could” be the last extension and with a move down to level 3 to follow “in principle”. 

Stocks negatively impacted by the lockdown were surprisingly higher, with Auckland Airport up +1.8% following Sydney Airport’s revised takeover bid. 

Pushpay shares was the best performer up +3.3% ahead of its investor day today, its highest level since April, recovering well since announcing its Resi acquisition. Infratil was up and other +2.3% following last week’s announcement to expand its renewal energy business into Asia. 

Property stocks were generally stronger,  Stride Property Group shares climbed +1.9% after revealing plans to spin off its office property portfolio into its own listed entity office property fund called Fabric Property.

3 Things Markets will be Watching this Week

  1. ​Key events this week include inflation (CPI) prints in the U.S, Eurozone and U.K along with activity data in China including Retail sales and Industrial Production.
  2. ​Australia’s latest employment data and second quarter GDP in NZ are due. Brambles, Telstra, Zip and Pushpay will host Investor Days.
  3. Covid and lockdown updates both sides of the Tasman
Global markets had a mixed start to the week overnight, with the US market (S&P 500 index, +0.2%) ending it’s 5 day losing streak.

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