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Can the Sydney Airport Holdings Limited share price take flight in 2016?

The Sydney Airport Holdings Limited (ASX: SYD) share price climbed 1% today to trade as high as $6.25.

In an announcement to the ASX, Sydney Airport’s November traffic statistics showed a 5.6% jump in monthly international visitors year-over-year. Domestic passenger traffic climbed 4.2% in the month of November and is up 2% for the year, so far. Meanwhile, international traffic is up 3.8 % in 2015.

This excellent result was driven predominantly by seat capacity growth from new and existing airline customers,” Sydney Airport CEO, Kerrie Mather said. “Foreign nationality demand (+7.5%) was a significant contributor to the robust international passenger growth, with Chinese (+16.5%), USA (+5.5%), Korean (+21.7%), Indian (+11.8%), Singaporean (+14.1%) and Philippino (+31.0%) nationalities performing well.”

In a positive sign for companies like Webjet Limited (ASX: WEB), Qantas Airways Limited (ASX: QAN) and Flight Centre Travel Group Ltd (ASX: FLT); Ms Mather said Australian outbound travel also “grew strongly (+3.8%).”

Can the Sydney Airport share price take flight in 2016?

The Sydney Airport Holdings share price has flown higher in recent years. In fact, since early 2012 the share price has climbed more than 125% – and is up 30% in 12 months alone. Today’s news will help reassure investors betting on big things from Australia’s leading international airport operator.

However, for large infrastructure businesses like Sydney Airport it’s also important to keep an eye on valuations.

Indeed, in recent years, the company’s increase in share price appears to have come largely as a result of an expansion in valuation.

OCF of SYD since 2012

Source: S&P Capital IQ

As can be seen in the chart above, the company’s operating cash flow, the cash it generates from its day-to-day activities, has risen around 14.5% since 2012. By contrast, the following graph shows the expansion in share price relative to net assets (assets minus liabilities), also known as the price-book ratio.

P/B of SYD 10 year

Source: S&P Capital IQ

While stretching valuations aren’t always a cause for concern, investors should conduct their own due diligence to determine a fair price to pay for any shares, but especially when buying dividend/defensive stocks like Sydney Airport.

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Motley Fool writer/analyst Owen Raszkiewicz has a financial interest in Flight Centre. 

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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 Bruce Jackson.

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