Transurban: Interest Rates Are a Headwind but Revenue Is Defensive and Growing

With its share price down 20% in the past six months, wide-moat-rated Transurban now screens as fairly valued. Like REITs and other infrastructure companies, Transurban carries significant debt and is hurt by the rapid and ongoing increase in bond yields. Australian government 10-year bond yields just hit 4.8%, from less than 1% in 2020. Fortunately, Transurban has long-dated debt and extensive interest rate hedging, which will slow the rise in its borrowing costs. Further, revenue is relatively defensive and growing strongly on the back of mostly Consumer Price Index-linked tolls, recovery from the pandemic, population growth, and completion of developments. Transurban reaffirmed fiscal 2024 distribution guidance of AUD 0.62 per security, up 7% from last year and representing a yield of 5.2% based on the current share price.