Transurban ups payout guidance on strong uptick in toll road traffic

Transurban has noted a need to better sell the benefits of toll roads, as it books a jump in underlying earnings.

Transurban Chairman Lindsay Maxsted speaks at the company's annual general meeting in Melbourne late last year. (AAP Image/Julian Smith)

Transurban says it needs to better communicate the benefits of using toll roads to consumers as the company upped its full-year distribution guidance after reporting a 12.1 per cent jump in underlying earnings for the first half.

Transurban (TCL) said it would pay an interim dividend of 25 cents per security to shareholders, while raising its full-year payout expectations from 50.5c to 51.5c a share due to “strong operational and traffic performance”.

Chief executive Scott Charlton said today that a Donald Trump presidency may not be the boon for infrastructure opportunities for the company in the US in the short term as expected, and said that the group currently had better opportunities in Australia.

Operationally, the group is benefiting from toll price increases 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 roads 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 peoples minds because they see the tolls and the bills,” he said today.

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

He said customers on Transurban’s roads in the US, which use so-called 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, which does not use such pricing models.

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 proportional EBITDA (earnings before interest, tax, depreciation and amortisation) to $817 million.

Its statutory net profit for the six month-period surged 35.8 per cent to $110m. Transurban shares rose 4.7 per cent to $10.87 in late morning trading.

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

Reported free cash flow for the half was substantially higher at $680m, however, this included a $178m capital release from NorthWestern Roads Group (NWRG), 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, it was not a substantial change.

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

Macquarie Equites said today: “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. Long-run growth comes from the growth projects like NorthConnect, and the new opportunities,’’ it said.