The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is down around 10% over the last six months. Should the airport operator be on your watchlist right now?
There was a lot of excitement about COVID-impacted shares in November and December 2020 as the world hoped that COVID-19 vaccines would help the world go back to normal.
Six months later things haven’t returned to normal (yet). Sydney has just gone into a two week lockdown because of the incredibly transmissible Delta variant of COVID-19. That’s obviously no good for air passenger traffic going through Sydney Airport.
The latest passenger numbers
Every month, Sydney Airport releases some monthly passenger numbers.
In May 2021, Sydney Airport saw 1.35 million domestic passengers go through its doors. That represents a 39.2% decline from May 2019 (pre-COVID times). However, with only 88,000 international passengers transiting over the month it meant that total passengers were down 59.1%.
Domestic traffic was reportedly impacted by the Victorian lockdown that was announced on 27 May 2021. The month on month improvement from April 2021 to May 2021 was driven by ongoing quarantine-free travel with New Zealand. That is currently on pause with Sydney’s lockdown.
The downturn in all other international passenger traffic is expected to persist until government travel restrictions are eased.
What to make of Sydney Airport shares?
It’s hard to value what Sydney Airport shares should be worth today. International passengers used to form an important part of the earnings before COVID-19 came along. But that doesn’t seem like things are going change there for at least the next six months – maybe quite a bit longer.
But domestically, passengers were getting back to their former levels. Not at the moment, but the Sydney lockdown isn’t going to be a long term thing (hopefully). A business’ valuation is based on more than just two (or a few) weeks of earnings.
With the current local and international COVID-19 strategy that Australia is taking, it’s hard to see how Sydney Airport can make any substantial amount of profit in this environment. It is out of the company’s control.
But that’s why the Sydney Airport share price is under $6 right now. With interest rates as low as they are, Sydney Airport’s pre-COVID cashflow and dividends would be highly valued by investors in this environment.
With interest rates likely to rise from here and the borders not likely to change any time, I don’t see a large upside in the medium-term. There are other ASX dividend shares that may be able to provide much more income in the time being.
