Sydney Airport Half Year Result: Sydney Airport shares surge on lift in distribution guidance

Sydney Airport (SYD) reported a lift in its half year revenue, profit and dividend while raising its distribution guidance to shareholders for FY17.

The result was driven by a lift in international passenger numbers and strong retail spending with new stores opening in two terminals.

SYD has already paid investors a $0.165 per security interim distribution on 14 August 2017. This was previously flagged in July and gives the stock a dividend yield ~4.7%. SYD has upgraded its distribution guidance for the year from $0.335 to $0.345 (a 3.5c improvement on FY16) after saying it has “increased confidence in the business outlook”. This is helping lift its shares on Tuesday.

SYD’s aeronautical division – its biggest earner – improved thanks to a near 8% lift in international passengers and international airline charge increases. Aeronautical revenue rose by 9% to $320.6 million over the half. Fees charged to international airlines for the use of the airport have been agreed up to 2020, with average annual growth in charges of 3.8%. 21 million passengers visited the airport over the first half of 2017, 13.2 million of which were Domestic passengers. The strongest growth however was certainly from international travellers.

Retail revenue in stores at the airport has grown by 14.3% following the completion of Heinemann Duty Free stores in mid-2016, new specialty stores together with food & beverage offerings in its T1 and T2 terminals. SYD is considering 10 additional retail stores in T2 (one of its Domestic terminals) to be open in late 2018. Two celebrity chefs have secured food offerings in the T1 (International) food court.

Car parking revenue was adversely impacted by an increase in train use, ride sharing and limousine services and softer growth in outbound passengers. Parking and ground transport revenue still rose a modest 2.2% to $77.1 million in the half.

Sydney Airport declined the option to develop and operate the Western Sydney Airport at Badgerys Creek three months ago. Sydney’s second major airport will now be built by the Federal government. SYD is undertaking a search to replace retiring CEO Kerrie Mather, who has been in the role for more than six years and announced her resignation earlier this year. No major updates were provided on the search.

SYD shares are up ~14% Year-to-Date and is significantly outperforming the broader sharemarket. It has reaffirmed its five year capital investment guidance of $1.3 billion for the 2017-2021 period. It expects the newly opened Mantra hotel and Ibis airport hotel purchased in July to boost hotel revenues over the second half.

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