Transurban switches to the fast lane

 

Transurban chief Scott Charlton has a sharp message for the naysayers who claim the toll road operator will be forced to hand back its mainstay CityLink asset to the Victorian government ten years earlier than the current 2035 expiry date of the concession.

Given CityLink is a regulated asset, Transurban can only enjoy a maximum return on the project but it’s claimed of late that the roadway has proved a little too lucrative at the expense of Melbourne’s impecunious motorists.

Fronting the full-year results prezzo today, Charlton blamed “speculation by a couple of parties with suspect motives and flawed analysis.’’

The key trigger for a review — an internal rate of return of 17.5 per cent — has not been breached. And as a holder of a gaggle of government concession agreements, Transurban (and independent arbiters) has its finger on the pulse on that one.

“We want to be clear (the grounds for) a potential review have not been met and are not forecast to occur,’’ he said.

Broker Credit Suisse agrees. “We think it is highly unlikely that this will eventuate as we estimate the equity internal rate of return reaching only 16.5 per cent by the end of the concession.’’

Transurban’s (TCL) stellar results show the roads giant is not nearly as reliant on its foundation asset it used to be, given the development of its Sydney network and the consortium-based purchase of Queensland Motorways.

Spurred by network improvements and Sydney’s improving economy, Transurban’s Sydney toll revenues grew by 14 per cent and now account for 41 per cent of total revenue. The Melbourne network accounts for 34 per cent, with revenues growing 7.3 per cent.

Aided by new Brisbane bitumen, overall toll revenues grew 17.5 per cent to $1.946 billion, while ebitda grew 14.8 per cent to $1.48bn.

By its nature Transurban is debt heavy and development-heavy, so its complex financials are a case of ‘pick a number’.

But investors in the stock for one thing — yield — will be pleased at mangement’s forecast of a 50.5c per security distribution in the current year, compared with 45.5c in 2015-16 (and 40c in 2014-15).

Transurban has a $9bn slate of committed and planned projects, including the CityLink and Monash Freeway widenings in Melbourne and Sydney’s Northconnex project.

Remarkably, all of these are on time and on budget, although, when pressed, management admitted to some slippage with the Monash project.

Of course, something has to fund all these improvements and Transurban’s debt has crept up to $12.48bn from $12.23bn. But the gearing ratio has declined to 33 per cent from 40 per cent previously, while the average tenor of the debt has risen to 8.7 years from 7.8 years.

Transurban is moving in the fast lane, although motorists paying for the privilege of sitting in peak-hour road works might not agree with this contention.

The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not hold shares in the stocks mentioned.