Earlier today I revealed that Goldman Sachs has just upgraded Qantas Airways Limited (ASX: QAN) shares to a buy rating. You can read about that recommendation here.
Qantas isn’t the only travel share that the broker is positive on. This morning it also reaffirmed its buy rating on Sydney Airport Holdings Pty Ltd (ASX: SYD) shares and lifted the price target on them to $7.02.
Based on the latest Sydney Airport share price, Goldman Sachs’ price target implies potential upside of 20% over the next 12 months.
Why is Goldman Sachs positive on Sydney Airport?
Goldman Sachs likes Sydney Airport due to its position as the main gateway into Australia, something which it doesn’t expect to change when the crisis passes.
It commented: “Sydney Airport is an unregulated monopoly asset and the primary aviation gateway to Australia, a structural position that is not going to change following the Covid-19 pandemic.”
The broker also notes that the company has been able to hibernate during the crisis to conserve funds.
Goldman added: “The low cost base (and high cash margin) of the business has enabled it remain in effective ‘hibernation’ (i.e. cashflow neutral) through much of CY20 awaiting the recovery of both domestic and international activity.”
And while it acknowledges that it cannot rule out a second wave of COVID-19 infections, it remains optimistic that the relaxing of border restrictions will continue through to the end of the year.
In light of this, its analysts expect the company’s net operating receipts to recover with passengers as trading conditions return to normal. And given its stapled structure, its distributions are expected to recover along with its net operating receipts.
Distribution forecasts.
The broker has ruled out distributions in FY 2020 but expects Sydney Airport to pay shareholders 14 cents per share in FY 2021 and then 26 cents per share in FY 2022.
Based on the current Sydney Airport share price, this equates to 2.4% and 4.5% yields, respectively.
I think Goldman Sachs is spot on and Sydney Airport could be a great option for patient income investors.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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