Tourism Boom – Sydney Airport | Tegel Offer Approved

25 September 2018

Global markets were mostly lower overnight, with industrials taking the biggest knock on Wall Street as the latest U.S.-China tariffs kicked in.  As we touched on yesterday, the key event to watch this week is the US Federal Reserve's two-day policy meeting which will conclude Thursday morning AU/NZ time.
 
One of our key medium-term investment themes is that a tourism boom across Australia and NZ will be a multi-year tailwind for tourism facing businesses, and solid NZ tourism data released last week reinforces our view.
 
The cost of travel is far lower than it has been historically, especially relative to incomes, with increased competition among airlines. Further, a growing middle class in Asia is likely to travel to Australia/NZ as an attractive tourist destination, with a weaker AUD & NZD also supporting tourism at the margins, in our view.
 
 
Stock in Focus: Sydney Airport (SYD:AX)
Being an airport, Sydney Airport is a clear beneficiary of our Tourism boom investment theme.

 
In terms of recent news flow, growing international passenger numbers drove revenue up +7.9% to $770.8m in SYD’s 2018 interim result. Operating earnings (EBITDA) were also up +8% from last year to $623.4m and management reaffirmed their 2018 full year dividend is expected to be 37.5 cents, up 8.7% from the previous year.
 
SYD also announced their 2039 masterplan, which is a major redevelopment of the airport as they expect total (annual) passenger numbers to grow +51% from 43.4m in 2017 to 65.6m passengers over the next 20 years.
 
We currently have a BUY recommendation of SYD. 
Members should look out for a full update on SYD to be released in tomorrow’s weekly report.

 
Australia & New Zealand Market Movers
The Australian share market was a touch lower on Monday (ASX 200 index -0.12%), starting the week on a mixed day of trading as positive gains from the energy sector were wiped by CSL and materials sector losses. In stock news, shares in Rare earths producer Lynas Corporation fell sharply as fears that an official government review of its Malaysian refinery could be confirmed within days after long-standing opponents of its operations rose to power in the country's surprise May election result.
 

The New Zealand market retraced yesterday (NZX 50 index -0.41%) with A2 Milk shares leading decline. A2 Chief executive Jayne Hrdlicka sold her 357,232 shares late last week at an average $12.20 to meet tax obligations and fund commitments made before she joined the company in July, A2 said in a filing. Shares in Tegel were higher as the Overseas Investment Office has approved the bid by Bounty Holdings New Zealand to buy Tegel Group Holdings, and the offer has been declared unconditional. All shareholders will be forced to sell their shareholdings to Bounty at $1.23 per share.

 
 

3 Things Markets Will be Watching this Week

1.             Trade related news-flow is likely to continue to feature in headlines.

2.             The US Federal Reserve makes an interest rate decision Thursday morning AU/NZ time.

3.             The Reserve Bank of New Zealand also makes a monetary policy statement on Thursday morning.  

 

Have a Great Day,

Team

One of our key medium-term investment themes is that a tourism boom across Australia and NZ will be a multi-year tailwind for tourism facing businesses, and solid NZ tourism data released last week reinforces our view.

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