Sydney Airport Rises Over 30% on Takeover Bid

There has been an increase in corporate actions over the last month, which is a sign of current market conditions given that corporate actions tend to increase near the end of a bull run. Last week, Sydney Airport was in the spotlight, as it had risen over 30 per cent on the announcement of a takeover bid from a group that includes Q Super, IFM Investors and Global Infrastructure Management. The group announced an all cash offer of $8.25 per share to buyout Sydney Airport and while I believe the offer is low, you can’t blame them for trying, as it would make Sydney Airport a cheap acquisition.

Is Sydney Airports (ASX: SYD) a buy?

No doubt, investors who owned Sydney Airport prior to the offer would be grateful for the significant rise given the stock fell heavily during COVID-19 and, as a result, was trading below where it was five years ago and is currently trading below the offer price and below its pre-COVID high of $9.07. That said, in my opinion the board should reject the current offer because despite trading in a challenging environment with the COVID restrictions, it is still a blue-chip asset and worth a lot more than the current offer.

Infrastructure assets like Sydney airport are so important for Australia and many top managed funds and superannuation funds know this and have sizable investments in these assets, therefore, investors should be looking to get the best result by asking for the current offer to be rejected. Whether the group raises their offer or another suitor, such as Macquarie, comes in with a higher bid is yet to be seen, so I would recommend that current investors wait to see what happens rather than exit right now. For those who don’t currently own the stock, I would say you have missed the boat as the upside potential right now may not be worth it, as any new bid is only likely to be 5 or 10 per cent more than the current price.

What were the best and worst performing sectors last week?

The best performing sectors last week included Industrials up 3.25 per cent followed by Consumer Staples up 1.40 per cent and Energy up 1.33 per cent. The worst performing sectors included Consumer Discretionary down 2.67 per cent followed by Healthcare down 2.15 per cent and Information Technology down 1.69 per cent.

The best performers in the ASX/S&P top 100 stocks included Sydney Airport, as you would expect, up 33.39 per cent followed by a2 Milk up 10.43 per cent and Lynas Rare Earths up 8.69 per cent. The worst performing stocks included Nine Entertainment down 10.76 per cent followed by Magellan Financial down 8.39 per cent and Tabcorp down 8.08 per cent with Qube Holdings and Crown Resorts not far behind, as both were down just under 8 per cent.

What's next for the Australian share market?

The All Ordinaries Index was a mixed bag last week, which may have been a reflection of the lack of direction from the US markets given they were closed on Monday due to 4th of July holidays. In addition, many in the financial services industry also take time off during this period due to summer holidays, which results in lower trading volumes.

While the Australian stock market rose to within one point of making a new all-time high last Thursday, it retreated strongly late in the day and continued to trade down on Friday with the market finishing the week on its lowest close in the last five weeks.

Once again, the market has displayed uncertainty and indecision, and while the US stock market had a good trading day last Friday, I don’t believe this will affect the direction of our market in the near future. Given this, I still believe the probability indicates that the All Ordinaries Index will continue to fall although as I have stated previously, we need to be prepared for anything to occur.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.