Sydney airport bonds a low risk investment
This week Money asks fixed income experts FIIG securities where to invest and their pick is Sydney airport bonds.
Sydney Airport bonds
Sydney Airport has eight Australian-dollar bonds in the over-the-counter bond market.
The two we like are inflation-linked capital-indexed bonds where variations in inflation during the life of the bond are added to and subtracted from the capital price of the bond, known as the "'adjusted capital price".
Interest is fixed but calculated on the adjusted capital price of the bond, so increases if inflation is positive.
At maturity investors receive the $100 issue value plus the cumulative impact of inflation over the life of the bond. Both bonds are considered low risk.
Sydney Airport is Australia's international gateway and primary airport.
It is also a major employer in NSW and makes a significant contribution to the local and national economies, estimated at $8 billion directly and $16.5 billion when flow-on effects are considered.
This contribution is equivalent to 6% of the NSW economy and translates into more than 75,000 direct jobs and 131,000 indirect jobs.
Sydney Airport is located 8km from the city centre and less than 10km from major tourist attractions.
Key financials for full year 2014
- Revenue up 4.3% to $1.164bn with good growth across all business segments.
- Aeronautical - revenue up 4.9% underpinned by 2.8% international passenger growth.
- Retail - revenue up 5.6% as passenger spend rates increased by 8.2%.
- Property - revenue up 3.6% with occupancy at 98%.
- Car parking - revenue up 5.7%. Online bookings now account for 29% of revenue.
- Underlying EBIT $621.9 million
- Cash flow coverage ratio 2.3 times
- The average debt maturity lengthened by 2 years to 7 to 8 years
- Minimum investment per bond is $10,000, with an upfront minimum of $50,000
- FIIG is a dealer and we take a small brokerage fee when we transact. This is already included in the yield to maturity returns shown below.
- A custody service fee is also charged.
1. Inflation linked bond maturing 20 November 2020 with an expected yield to maturity of 5.20%* per annum - available to retail and wholesale investors
2. Inflation linked bond maturing 20 November 2030 with an expected yield to maturity of 5.99%* per annum - retail and wholesale investors
* Indicative yield to maturity assuming inflation averages 2.5% over the life of the bond (being the RBA target mid-point of between 2 to 3%) and subject to change