Transurban Group Ltd (ASX: TCL) is a leading toll road owner and operator, with a portfolio of assets in Australia (Melbourne, Sydney and Brisbane), as well as in North America (Greater Washington, United States and Montreal, Canada). Concession lives are fixed, with toll roads handed back to their respective government’s debt-free at the end of the concession. The weighted average concession life of the portfolio is around 30 years. Toll roads have high barriers to entry and benefit from rising traffic volumes and tolls, which increase generally in line with movements in the inflation rate as measured by the consumer price index. TCL is a stapled security, with a considerable portion of its net cash flows distributed to security holders pre-tax.

What is the result for HY20?

  • Profit from continuing operations for HY20 is A$162 million, up around 12% from the corresponding period.
  • Average daily traffic for HY20 grew at 2.3%.
  • Proportional toll revenue for HY20 is A$1,396 million, up 8.6% from the previous period.
  • Sydney average daily traffic for HY20 increased by 2.2%, with proportional toll revenue increasing by 10.8%.
  • Melbourne average daily traffic for HY20 increased by 1.1%, with proportional toll revenue increasing by 3.7%.
  • Brisbane average daily traffic for HY20 increased by 3.6% with proportional toll revenue increasing by 6.6%.
  • North America average daily traffic for HY20 increased by 3.6%, with proportional toll revenue increasing by 6.6%.

 

What is the driver behind this sound result?

The main positive announcement from this result was the 10.8% increase in toll revenue in Sydney. Transurban Group’s CEO Scott Charlton said:

In Sydney, our development project are progressing with commissioning works underway at both NorthConnex and the New M5 Tunnels for expected completion in mid-2020. The M4-M5 Link currently has 26 road headers tunnelling with over 1.7 million tonnes of spoil excavated to date. During the period we also acquired the 34.62% minority interests in the M5 West, taking Transurban’s ownership to 100%, with the integration program on track.

 

What is the outlook?

TLC its distribution guidance of 62.0 cents per security for FY20, up 5.1 per cent the FY19 distribution of 59 cents per security. Operating cash flow and distributions are expected to increase steadily over time driven by rising tolls and traffic volumes while the cost base is largely fixed.

TLC currently has eight projects including in Sydney (the NorthConnex and the New M5 Tunnels (for expected completion in mid-2020) and the M4-M5 Link) Melbourne (the West Gate Tunnel Project) and in Greater Washington. These projects provide a longer-term growth profile.

 

What is the market reaction?

The market reaction to Transurban Group is positive. Transurban Group is up 1.5% and is currently trading at A$16.34. Transurban Group has a forward P/E ratio around 180x and an annual dividend yield of 3.8%.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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February 11, 2020