Transurban profit jumps, forecasts higher payout

Transurban cites a “heavy period of development’’, as its shares drop on growth and dividend forecasts.

Transurban CEO Scott Charlton. Pic: Stuart McEvoy

Transurban chief executive Scott Charlton has defended the company’s distribution guidance for the year ahead, noting it was going through a “heavy period of development’’, as investors sent its shares 3 per cent lower in morning trade after the toll-road giant forecast lower-than-expected growth in 2018.

Transurban said it was looking at paying security holders 56¢ a share in the 2018 financial year, which would be 8.7 per cent up on the 51.5 cents payment for fiscal 2017 but below consensus forecasts of 56.7¢.

“We are going through a heavy period of development,’’ Mr Charlton said, pointing to Transurban’s $9 billion development pipeline that the company confirmed today was on-time and on budget.

“The board is saying they are comfortable with the 56c distribution ... With a lot of activity on the network.’’

He declined to describe the forecast as conservative.

Transurban shares were trading 36 cents or 3 per cent lower in morning trade at $11.58.

Earlier Transurban said increased revenue from its toll roads had helped to drive a steep rise in annual profit, as it continued to weigh a possible bid for control of the WestConnex highway in Sydney.

Transurban (TCL), which owns roads in Australia and the US, said its net profit increased to $209 million in the 12 months through June from $22 million in the 2016 fiscal year.

Proportional toll revenue — the company’s preferred measure of the performance of its roads — rose by 11 per cent to $2.15 billion in the fiscal year.

“Transurban has a history of upgrading distributions throughout the year so at this stage we read little into this guidance,’’ RBC Capital Markets told clients this morning.

The broker also noted that management’s long term incentives for 2018 would be assessed with a target growth rate of 8-10 per cent for FY18 (versus 9-12 per cent for FY17) against the 51.5c distribution in 2017.

Some analysts have claimed the company will struggle to keep lifting payouts as spending commitments rise, including when financial close is reached on the West Gate Tunnel in Melbourne.

Transurban today cited Sydney’s WestConnex project among potential opportunities in New South Wales that also include the Beaches Link and Western Harbour Tunnel.

Transurban’s interest in WestConnex comes after NSW said in May it wanted to sell at least a 51 per cent stake in the highway to raise funds to complete the final stage of construction. The state government aims to gauge interest later this year, and is targeting a closing date for a transaction in mid-2018.

The WestConnex sale is the latest move by an Australian government to sell infrastructure assets around the country to pay for the construction of roads, rail lines, hospitals, schools and other developments. In May, NSW agreed to sell control of one of the state’s largest power grids for $7.62 billion.

UBS has estimated a 51 per cent equity stake in WestConnex could be worth between $2 billion and $4 billion, depending on business scenarios. It expects Transurban to bid, partly to prevent a rival from establishing a foothold in Sydney.

With Dow Jones Newswires