Hot Undervalued Companies To Buy Right Now
The world just can't get enough of Australia.
Or at least that's what one might conclude after looking at the latest tourism numbers from the country. They show that international visitors spent A$30.1 billion in Australia in the year ended June 30, up 7.0% from the previous year ($1 Australian = $0.90 U.S.).
China continues to be a fast-growing tourism source, with 709,300 Chinese visitors landing in Australia in 2013, up 14.4% from 2012. Tourism Research Australia sees that figure topping one million by 2020.
But tourists from other Asian destinations continue to arrive en masse, as well. That includes those from Malaysia (up 24% in the year ended May 2014), Hong Kong (up 23.3%) and India (up 20.5%).
That growth is being driven by two key factors: the fact that Australia is at most an eight-hour flight for most Asian tourists, and the rapid rise of the continent's middle class. According to Reuters, Asia will be home to 64% of the global middle class by 2030, up from 30% now.
Aussies Take to the Skies
Meanwhile, more Australians are hopping on a plane, with 5.4 million choosing an overseas holiday in the year ended March 2014. That's up 8% from a year ago and more than double the number who ventured overseas in 2006.
A stronger Australian dollar has helped support that growth. As well, international airfares remain at record low levels, a trend that's expected to continue.
"The prices and affordability are exceptional and extraordinary, and this will continue to drive growth," said Graham Turner, managing director of the Flight Centre Travel Group Ltd. (ASX: FLT), in a recent Sydney Morning Herald article.
Another factor? According to a recent report from Credit Suisse, Australians are the world's r! ichest people, with a median wealth of US$219,505. As of the end of 2013, 1.1 million of the country's 23.1 million citizens were millionaires.
Australia's Asian Gateway
All of this adds up to sunny skies for Sydney Airport (ASX: SYD, OTC: SYDDF), which is Sydney's only international airport and Australia's largest, with 37.9 million passengers trooping through its three terminals in 2013.
Sydney Airport is one of five stocks we recommend in our new special report, "The Secret to Becoming a Millionaire: 5 Australian Stocks That Can Make You Rich." (See below to get your free copy today.)
The company's pricing is subject to a less rigorous regulatory framework than some of its peers in Europe and the U.S., as it negotiates commercial agreements directly with airlines. The airport was government-owned until its privatization in 2002.
More traffic from Asia, along with a long history of rising revenue and earnings, caught the attention of Australian Edge chief strategist David Dittman, who added the stock to the advisory’s Aggressive Portfolio in December 2013.
"[Sydney Airport's] financial and operating results in the 21st century are evidenced by long-term resilience and supported by strong growth in passenger numbers," he wrote at the time. "This traffic growth is now driven to a large degree by Chinese tourism."
Investors who purchased shares then have seen a 24.4% total return in just nine months. And Dittman feels Sydney Airport has plenty of altitude to gain yet.
Strong Results in First Half
In the first half of 2014, Sydney Airport's revenue rose 5.7%, to A$568.4 million from A$537.9 million in the first half of 2013.
Overall passenger numbers were up 2.3% from a year ago, to 18.6 million. The international passenger count increased 4.5%, to 6.4 million, while domestic traffic rose 1.2%, to 12.2 million.
The gains were helped by cultural and sports events, like the Chinese New Year, a Rotar! y confere! nce in Sydney and the Ashes cricket series between England and Australia. Correspondingly, the airport saw more travellers from Asia and markets like the U.K., France and the U.S.
Revenue increased across Sydney Airport's operations, including aeronautical revenue (up 5.7%), retail (up 7.4%), property and car rental (up 6.8%), and car parking and ground transport (up 5.7%).
Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 6.1%, to $A459.5 million. The company paid an interim distribution to unitholders of A$0.115 a share on August 15, up from A$0.11 a year earlier. The stock currently boasts a 5.4% yield.
The company aims to pay out 100% of its free cash flow as distributions, and remains on track to deliver a full-year distribution of A$0.235, in line with its earlier guidance.
Second Airport Might Be an Opportunity in Disguise
Sydney Airport could face new competition after Prime Minister Tony Abbott's government recently approved a one-runway airport at Badgerys Creek, 50 kilometers west of Sydney's central business district.
However, as part of the company's privatization deal, it acquired the right of first refusal to build and operate a second airport; it plans to start formal consultations with the government on September 30.
The government says the private sector must assume construction costs of around A$2.5 billion, but the Abbott administration has pledged A$2.9 billion to expand and upgrading several major roads that would eventually lead to the airport. The government wants to see shovels in the ground in 2016, with the first planes landing sometime in the middle of the next decade.
Most analysts feel that Sydney Airport will likely work with the government on the project, including Dittman.
"A second airport could provide the company with a long-term growth opportunity, since western Sydney's population is expected to rise by 50% over the next 20 years, to 3 million from 2 million," he ! wrote in ! an April 16 Australian Edge article.
The new airport's distance from Sydney's city center could bring other benefits, such as a lack of a curfew, where Sydney's operations are strictly limited between 11 p.m. and 6 a.m. The new airport could also become a hub for growth-oriented budget airlines.
No matter what Sydney Airport ultimately decides, Dittman sees clear skies ahead.
"Proximity to Asia and its growing middle class, with a high propensity to travel, and increased airline capacity put Sydney Airport in a prime position to grow for the long term," he wrote in his new special report.
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