Sydney Airport Holdings Pty Ltd (ASX: SYD) has released its HY20 report and it has announced a $2 billion capital raising.
FY20 result
Sydney Airport said that 9.4 million passengers went through the airport in the half year period, a 56.6% decline on the prior corresponding period. The total passengers in the first quarter of 2020 was 9 million. COVID-19 has caused a significant impact on passenger numbers.
There was a 57.3% drop in international passengers and a 56.1% fall in domestic passengers.
Total revenue dropped 35.9% to $511 million.
Sydney Airport’s EBITDA (click here to learn what EBITDA means) fell 35.4% to $300.4 million. While operating costs dropped 20.5%, net operating receipts fell 79% to $90.4 million.
The airport operator recorded a loss after income tax of $53.6 million.
Sydney Airport recognised a $40.9 million doubtful debt provision, including the full impairment of pre-admin Virgin Group debts. It also recognised a $22.2 million impairment charge relating to capital projects that are being impacted or delayed. Rental abatements amounted to $52.9 million and rent deferrals were $6 million.
It’s unclear how long travel restrictions will be in place, so Sydney Airport’s performance will be impacted until they lift. It’s targeting a 35% reduction in operating costs for the 12 months from 1 April 2020.
Capital spending will be reduced, to a range of $100 million to $125 million for the 2021 calendar year.
There was no dividend for shareholders.
Capital raising
Sydney Airport also announced that it’s going to raise $2 billion for four key reasons: Substantially reduce net debt, to enhance financial resilience, to maintain its investment grade credit rating and increase liquidity.
Sydney Airport CEO Geoff Culbert said: “Sydney Airport took pre-emptive action at the start of the COVID-19 pandemic, putting in place significant liquidity which gave us the flexibility to monitor how the situation evolved. Six months into the pandemic, there remains uncertainty as to how long it will take for aviation markets to return to pre-COVID-19 levels.”
The offer will be a fully underwritten pro rata accelerated renounceable entitlement offer. People can buy one Sydney Airport share for every 5.15 they currently own at a share price of $4.56 per share.
That price is a 15.4% discount to the last traded price yesterday. Regular investors like you and I will be able to start taking up shares from 18 August 2020.
Summary
I can understand why Sydney Airport did this raising. It didn’t want to run too low on cash, it’s better to raise money with a relatively strong position. But it dilutes existing shares, but it’s probably better than overloading on debt when it’s uncertain when travel will return.
It’s a cheap capital raising price – cheaper than the March 2020 low. It just depends on when a good amount of travel returns – if it’s years away then this may not be cheap. If a healthcare solution is found within six months then this could be a great time to pick up shares. There are easier ASX dividend shares to think about in my opinion.
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