Kick Off: Sydney Airport Holdings Ltd v Transurban Group
By Tim McArthur - June 14, 2014 | More on: SYDTCL
Excitement has most certainly been building as Sydney Airport Holdings Ltd (ASX: SYD) and Transurban Group (ASX: TCL) – two titans of the infrastructure world – prepare to battle it out in the Motley Fool’s ASX World Cup.
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With monopoly-type assets, both companies have delivered sound returns to shareholders. The total shareholder return (TSR) of Sydney Airport has been a stunning 16.8% per annum (pa) over the past 10 years, while Transurban has provided a solid TSR of 11.4%.
However as all fans of the investing game know, while historic performance is an important consideration and at times a useful guide, it’s ultimately the future expected performance which we are most interested in.
Here are some key stats on each company:
Source: Morningstar.
Column 1 Column 2 Column 3 0 Sydney Airport Transurban 1 Market Cap $9.6 billion $14.45 billion 2 Debt/ Equity 184% 145% 3 Operating margin 78.2% 55.8% 4 FY 2015 Yield 5.8% 5%
First Half
In the first half the two sides are battling it out over fundamentals. The defensive nature of their businesses which boast steady, reliable streams of revenue and predictable earnings mean highly leveraged balance sheets are acceptable. There’s little to split the two on this front.
Likewise, when it comes to valuation, there is not a lot to separate them on. Don’t be deceived by the fancy looking footwork and the higher dividend yield provided by Sydney Airport – it’s unfranked – as opposed to Transurban’s which carries around 20% franking.
Just before the siren brings the first half to a close let’s take a look at the operating margins of each firm too. While Sydney Airport’s is indeed higher – which is a positive – it’s more important to consider the margin in the context of the direction and maintainability. On this score it would appear a dead heat.
Half time
At half time the two infrastructure businesses are neck-and-neck, but with growth under the microscope in the second half there’s every chance this isn’t going to end in a draw…
Second Half
With the two titans refreshed and back on the field it’s time the to show off their growth credentials.
Sydney Airports has actually been shrinking its asset base in recent years from global airport operations to a focus solely on the Sydney Airport asset. The Federal Government’s decision to push ahead with a second airport at Badgerys Creek would appear – despite its first right of refusal – on balance to be a negative for Sydney Airport.
In comparison, Transurban continues to aggressively grow its toll road assets and seize opportunities to score for its shareholders. Recent acquisitions and expansion projects have included the Cross City Tunnel, Queensland Motorways and the CityLink-Tulla Widening Project. Transurban shoots and SCORES!
Full Time
While both companies put up a good fight and are definitely finalist contenders given their desirable assets, the growth profile of Transurban appears far superior and it wins the game 1-0.
Infrastructure assets are a great source of dividends for investors given their maintainable earnings, however for fast growing, fully franked dividends investors sometimes have to search deeper.
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