Macquarie is set to net around $350 million from the distribution of Sydney Airport shares. Further (and favourably) as the investment bank is selling its stake via a distribution to shareholders, it avoids paying Capital Gains tax on the sale – this gets passed onto Macquarie shareholders should they decide to sell on the open market.
Some proceeds from the sale of Sydney Airport are likely to be shared as part of Macquarie’s staff bonus pool.
Regardless of all this information as a Macquarie shareholder is this a good deal? Yes and no. Looking at Sydney Airport from a technical perspective, price action has been in a long-term uptrend since 2009. Momentum is strong however price is closing in on the all-time high of $4.46 achieved in 2007. For those not familiar with stock charts, an all-time high is a significant price level for any stock and it is quite common to see strong resistance and a subsequent reversal as price touches this point. Being a technical analyst I tend to base my investment decision primarily on what price action or a chart tells me and I back this up with fundamental analysis. In other words I’m looking for both price action and fundamental data to tell me whether a company is a good buy. Technically, Sydney Airport looks okay, however it’s a different story fundamentally. Whilst there are opportunities to expand the current Sydney Airport business including growing the car park business, using surplus land for commercial opportunities and catering to rising Asian tourism in the region, as it stands the investment itself is a very expensive deal. Sydney Airports P/E (price over earnings) ratio is a hefty 40.85 at the time of writing. The sector average is 16.04. I must admit I tend not to pay too much attention to this figure but when coupled with a low Earnings per Share (a sign of growth) of just 10 cents currently, moving into a forecasted 12 cents next year and massively high debt levels standing at over 300% of equity, these figures paint a pretty daunting picture for shareholders.
As Macquarie shareholders, until now, have only had general exposure to Sydney Airport through holding Macquarie shares such figures could have been pushed to one side. The bank was still receiving management and consulting fees and by all accounts doing quite well income-wise from its stake. With the turnaround in Macquarie’s main business any downside risk to shareholders from Sydney Airport is minimised. Direct exposure through the proposed distribution turns this investment on its head and I’m sure if the deal does go ahead a number of shareholders will be looking at these same numbers and thinking their money could be better placed in a more attractive investment. Such an event could be the catalyst for a large sell down of the Sydney Airport share price. Importantly, you also need to wonder that if Macquarie has been unable to sell their stake to a private investor and through the proposed distribution are virtually wiping their hands of this asset (making a tidy sum and avoiding tax payments whilst doing so), do they know something we don’t?