Are COVID restrictions making Sydney Airport a cheap acquisition?


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There has been an increase in corporate actions over the last month, which could be a sign the market is near the end of a bull run.

This week, Sydney Airport is in the spotlight, as it has risen more than 30% on the announcement of a takeover bid from a group that includes Q Super, IFM Investors and Global Infrastructure Management. The group announced an all-cash offer of $8.25 per share to buy out Sydney Airport Holdings and while I believe the offer is low, you can't blame them for trying, as it would make Sydney Airport a cheap acquisition.

No doubt, investors who owned Sydney Airport prior to the offer would be grateful for the significant rise given the stock fell heavily during COVID-19 and, as a result, was trading below where it was five years ago. It's currently trading below the offer price and below its pre-COVID high of $9.07.

market wrap sydney airport buyout

That said, in my opinion, the board should reject the current offer because despite trading in a challenging environment with the COVID restrictions, it is still a blue-chip asset and worth a lot more than the current offer.

Infrastructure assets like Sydney Airport are so important for Australia and many top managed funds and superannuation funds know this and have sizable investments in these assets. Therefore, investors should be looking to get the best result by asking for the current offer to be rejected.

Whether the group raises its offer or another suitor, such as Macquarie, comes in with a higher bid is yet to be seen, so I would recommend that current investors wait to see what happens rather than exit right now.

For those who don't currently own the stock, I would say you have missed the boat as the upside potential right now may not be worth it, as any new bid is only likely to be 5-10% more than the current price.

Best and worst performing sectors this week

The best performing sectors again this week include Communication Services up more than 2% followed by Consumer Staples, which is also up more than 2% and Consumer Discretionary up more than 1%.

The worst performing sectors include Utilities down more than 4% followed by Information Technology down more than 2% and Energy, which is just in the red.

The best performers in the ASX/S&P top 100 stocks includes Sydney Airport, as you would expect, as it is up more than 34%, as of writing, followed by a2 Milk up more than 9% and Challenger up more than 8%.

The worst-performing stocks include Nine Entertainment down more than 9% followed by Tabcorp and Magellan, which are both down more than 7% while Qube Holdings and Crown Resorts are down more than 6%.

What's next for the Australian share market

The All Ordinaries Index has been a mixed bag this week, which may be a reflection of the lack of direction from the US markets given they were closed on Monday due to the Independence Day holiday. Many in the financial services industry also take time off this week, which results in lower trading volumes.

That said, on Thursday the Australian stock market rose to within one point of making a new all-time high before retreating strongly late in the day.

As I mentioned in my previous report, it will be interesting to see where our market closes on Friday; if it closes low this indicates weakness and that the market will most likely trade down next week. If it rises to close high, I would expect it will make a new all-time high.

Once again, the uncertainty and indecision in our market is dominating, so while I still believe the probability indicates the market will fall, we do need to be prepared for anything.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.