Transurban: Buying yield and growth
27 Mar 2017
By Shadforth Financial Group
Transurban (TCL) owns a portfolio of high quality, high performing toll road assets across Sydney, Brisbane, Melbourne and Virginia in the US.
TCL’s roads are strategic across the road network, making it almost impossible to transit through the eastern states without using their toll roads. TCL’s resulting monopolistic control of these roads and the very high barriers to entry make these assets extremely stable and desirable.
TCL’s portfolio is one of exceptionally high quality and includes complementary assets with built-in quarterly Consumer Price Index increases to toll road prices, delivering an embedded inflation protection to the income line.
The portfolio is therefore able to deliver a consistent and growing yield in line with inflation, with the additional benefit of growth through increased traffic, price, operating leverage and asset development.
TCL’s monopolistic asset base gives them the ability to increase prices without damaging utilisation as well as the potential to add new roads through acquisition and brownfield expansion.
TCL has been able to deliver compound annual growth of over 10 per cent per annum since 2009 before acquisitions, which boost the number due to TCL’s disciplined approach to valuation and forecasting of traffic growth and road usage.
TCL is highly leveraged and continues to manage debt in a prudent manner while negotiating extensions of average concession lives across the portfolio. The stable nature of the assets, high barriers to entry and mandated pricing power allow TCL to manage debt appropriately, generating defensive and growing revenues. The operating leverage allows a strong payout ratio.
Therefore, TCL is well placed to deliver a strong and growing yield over time.