Transurban shares dip after ‘underwhelming’ guidance

The roll road operator said traffic flows on its network exceeded pre-pandemic levels in recent months, but its dividends guidance was lower than expected – sending shares down.

West Gate Freeway and Tunnel construction works near Williamstown Rd in Melbourne. Picture: Andrew Henshaw

Transurban has disappointed investors with a distribution forecast described as “very underwhelming”, sending shares in the toll road giant sharply lower.

The company said on Thursday that traffic flows on its Australian network of toll roads exceeded pre-pandemic levels in three months to June 30, with the return of international travel fuelling a surge in traffic on motorways linking the largest cities with airports.

Proportional EBITDA, which reflects the company’s ownership interest in its toll roads and is the company’s preferred measure of performance, increased 4.9 per cent to $1.9bn in the financial year, off a 5.7 per cent increase in proportional revenue to $2.76bn.

It was the final set of results for the company’s long-time chair Lindsay Maxsted, who announced that he would step down at the company’s annual meeting in October. He will be replaced by Craig Drummond, who joined the Transurban board last year.

The company will pay a final distribution of 26c, but it was the company’s 53c payout guidance for the next financial year that generated interest from investors.

Analysts were anticipating a figure closer to 60c, with the expectation that Transurban would dip into $600m worth of capital releases unlocked when the company acquired an additional 24.5 per cent stake in Sydney’s WestConnex project last October.

RBC Capital Markets equities analyst Owen Birrell noted that the payout forecast “looks very underwhelming”, while E&P suggested it would “likely be disappointing to the market”.

“The acquisition of 24.5 per cent stake in (WestConnex) indicated that there would be $600m of additional capital releases used to offset the dilution impact of the capital raising,” E&P said.

“FY22 DPS included 2c per share of this. The $600m in total represented c19c per share and we suspect the market was expecting more to be released in FY23. The market won’t like this and stock likely to come under pressure.”

Transurban shares fell more than 4 per cent in morning trade before ending the day down 3.4 per cent – or 50c – at $14.16.

But the company’s chief executive, Scott Charlton, defended the forecast during a call with analysts on Thursday.

“I understand why people would be disappointed but we’re coming out of Covid,” he said.

“There has been a lot of volatility over the last two years and obviously giving full-year guidance, when the last two years we’ve not been able to give guidance, we think it’s pretty strong. It’s a 30 per cent increase plus the capital releases.

“It was just a year ago that Sydney traffic was looking terrible and the city was shut down.

“And the timing of the distributions follows behind that so we’re having to deal with those consequences. There’s no issue with getting the distributions out, it’s just we have always had a fairly conservative capital and balance sheet management philosophy.”

Transurban’s results were in line with analyst estimates, with traffic flows returning to Australian roads after a series of lockdowns kept people at home for large parts of the Covid-19 period.

Excluding profits from discontinued operations in the previous year – representing the March 2021 sale of a 50 per cent stake in the Chesapeake assets in the US – Transurban’s statutory result improved from a $287m loss to a $16m profit. The company, which operates toll roads in Sydney, Melbourne, Brisbane, Canada and the US, has benefited from its inflation-linked toll price increases as motorists return to CBD offices and airports across the country.

Mr Charlton said while traffic volumes were flat year-on-year, they had increased during the year, with volumes reaching a new high in the fourth quarter, exceeding pre-pandemic levels.

“As anyone who’s been to an airport ... can attest, people are certainly travelling again … and in our most recent mobility trends research we found that travel to the airport was the most common reason for using toll roads,” he said. “We’re also starting to see people form a degree of consistency in some of their … habits.