Transurban lifts distribution guidance on strong profit result

Transurban is talking up growth oppor­tunities as it raises full-year distribution guidance after a strong result.

Transurban chief executive Scott Charlton yesterday. Picture: Stuart McEvoy

Transurban has played down the prospect of a short-term boon for infrastructure investment in the US spurred by the Trump presidency but talked up growth oppor­tunities at home as it raised its full-year distribution guidance after a strong profit result.

The toll-road operator said yesterday it would pay an interim dividend of 25c a security and raise its full-year payout expectations from 50.5c to 51.5c a share after ­reporting a 12.1 per cent jump in underlying earnings underpinned by strong operational and traffic performance.

Chief executive Scott Charlton said the group continued to be the beneficiary of better than ­expected growth in NSW and Victoria and he saw distribution growth for “the medium term’’. Trans­urban shares closed 6.4 per cent higher at $11.04.

Mr Charlton welcomed US President Donald Trump’s key appointments that focused on the transport infrastructure space and said it would be a positive for the sector in the medium to long term.

But the Texan-born expatriate said he was concerned about some of the early moves by the new administration. “As an American, you never like to see the volatility in some of the ­announcements in your adopted country and what is a good partner for Australia,’’ he told The Australian.

“Some of the commentary being made, it is not something we are really used to. (But) we will ­adapt.

“From a personal perspective, I would like to see a bit more ­restraint in the public conversation (coming from the new ­administration).”

Operationally, Transurban is benefiting from toll prices rising above inflation and higher tolls for heavy vehicles on its network of roads in Melbourne, Sydney and Brisbane.

Mr Charlton said everyone in the toll-road industry was conscious of the cost to the household budget of higher tolls, especially given more affordable housing was increasingly located on the fringe of the nation’s three ­biggest cities.

“Yes, we are conscious of it and it is front and centre of people’s minds because they see the tolls and the bills,’’ he said.

“We do need to do better communicating the time savings and other benefits people get from using our assets.’’

He said motorists on Transurban’s roads in the US that use dynamic pricing — where tolls and lane access vary according to the time of day — could see the tangible benefits of toll roads, which was not so clear in Aus­tralia as it did not use such pricing models.

But Mr Charlton said Transurban would increasingly introduce more technology to help win over consumers.

“In the future we will be able to provide real time information on alternatives and choices so people can make informed decisions and feel empowered and understand the value equation which is fundamental to our business proposition,’’ he said.

Transurban plans to test driver­less cars on its flagship CityLink tollway in Melbourne before turning to Queensland for further trials and then to NSW. It is ­believed to be in talks with Brisbane City Council on a trial similar to the one in ­Melbourne.

For the six months to December 31, Transurban booked a 10.9 per cent rise in proportional toll revenue to $1.07 billion on the back of a 4.8 per cent gain in average daily traffic.

The numbers helped drive a 12.1 per cent advance in EBITDA (earnings before interest, tax, ­depreciation and amortisation) to $817 million.

Its statutory net profit for the six months surged 35.8 per cent to $110m.

Mr Charlton confirmed speculation that the $5.5bn Western Distributor project in Melbourne would probably need an equity raising if it proceeded following an agreement with the Victorian government.

Reported free cash flow for the half to December 31 was substantially higher at $680m, but this included a $178m capital ­release from NorthWestern Roads Group, which was created to hold the M7 group and to ­develop the NorthConnex project in Sydney.

Mr Charlton said while debt on the project had gone from 21 per cent to 26 per cent because of the ­release, which was related to the group meeting construction milestones on the project, it was not a substantial change.

Transurban’s cash earnings (EBITDA net cash tax and cash interest expense) were $462m in the half.

Macquarie Equites said: “Such variations are low quality and are typically driven by ­replacing equity with debt. There is nothing wrong with such an approach as long as it is not being used to support the dividend.’’

However, the broker said Transurban was delivering “stable, predictable growth’’.

“Near term, it benefits from price increases, and medium term from the widening of the major roads like CityLink,” it said. “Long-run growth comes from the growth projects like North­Connex and the new ­opportunities.’’