Company Reports

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

Wide-moat-rated Transurban’s fiscal 2024 proportional EBITDA increased 7% to AUD 2.63 billion, which is in line with our expectations. The result benefitted from outsize toll uplifts as most tolls are Consumer Price Index-linked, with modest improvement in traffic volumes and good cost control. EBITDA margin increased 70 basis points to 73.1%. Fiscal 2025 distribution guidance is for AUD 0.65 per security, and we lift our forecast by AUD 1 cent to bring it in line. We leave our earnings forecasts largely unchanged and lift our fair value estimate by 2% to AUD 12.80 per security, mainly on the time value of money. At current prices, the stock screens as fairly valued.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

We downgrade our fiscal 2024 proportional EBITDA forecast for wide-moat Transurban by a few percent as traffic volumes in the year to date are softer than we expected. Longer-term forecasts are largely unchanged—we continue to forecast a five-year EBITDA compound annual growth rate of about 7%. We maintain our AUD 12.50 per share fair value estimate and consider the stock to be fairly valued, offering a mostly unfranked yield of 4.8%.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

We maintain our AUD 12.50 per share fair value estimate for wide-moat Transurban. First-half fiscal 2024 proportional EBITDA lifted 8% on the previous corresponding period to AUD 1.3 billion. With interest costs contained, free cash flow, excluding capital releases, grew 18% to AUD 32.5 cents per share, fully covering Transurban’s interim distribution of AUD 30 cents per share. We maintain our total fiscal 2024 distribution forecast of AUD 62 cents per share, in line with management’s reaffirmed guidance. Shares in Transurban look fairly valued at current prices, with an implied yield of 4.7%.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

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.

As expected, wide-moat Transurban reported a relatively flat first-half fiscal 2022 result. Proportional EBITDA fell 4% from the previous corresponding period, or PCP, to AUD 805 million on weaker traffic volumes, particularly in Sydney, where the firm earned 51% of fiscal 2021 revenue. But vehicle usage quickly rebounds when restrictions are removed--as we saw in the December 2021 quarter with an increase in average daily traffic in all locations except omicron-affected Sydney. With government mandated restrictions largely removed or reduced, conditions should improve from here and we expect a stronger second half, finishing the fiscal year with EBITDA of about AUD 1.9 billion. We maintain our fair value estimate of AUD 12.00 per share and consider the stock to be slightly overvalued at present.

We maintain our AUD 12.00 per-share fair value estimate for wide-moat Transurban Group following its 2021 investor day, which highlighted recovering traffic volumes and the large development pipeline, which may get a boost in the U.S. by an increasing focus on improving infrastructure. But there weren't any major revelations and we maintain our view. Incorporating recent traffic data, we marginally downgrade our near-term earnings forecasts for North America and Melbourne, however, this is offset by upgraded earnings forecasts for Sydney. At the current share price, Transurban screens as moderately overvalued, trading 17% above our fair value estimate. It offers investors a modest fiscal 2021 distribution yield of 2.6%, though distributions are likely to double over the next five years.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

Wide-moat-rated Transurban reported an understandably weak first-half fiscal 2021 result. Proportional EBITDA fell 23% from the previous corresponding period to AUD 840 million on weaker traffic volumes, particularly in the U.S. and Melbourne. Conditions should improve from here and we expect significant growth in the second half as the firm cycles the heavily virus-impacted second-half fiscal 2020, which produced EBITDA of just AUD 794 million. Traffic volumes in Sydney and Brisbane early this year have been as good as or better than pre-COVID-19 levels. Melbourne is rapidly improving and we expect U.S. roads to recover through 2021. However, temporary setbacks are likely as lockdowns may again be needed to keep the virus under control. We downgrade our fiscal 2021 EBITDA forecast by 2% to AUD 1.8 billion. Medium-term expectations for EBITDA to grow at an average annual rate of 11% from fiscal 2020 are unchanged. We maintain our AUD 12 per security fair value estimate and consider the stock slightly overvalued at present.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

Traffic growth was fairly soft in most markets in the September quarter 2018. Slowing growth appears to be more than just related to roadworks and other one-offs. Some assets are maturing faster than expected while others are likely impacted by cost of living pressures, leading us to downgrade our medium-term growth expectations modestly. We trim our fair value estimate 4% to AUD 11. At the current price, the stock is fairly valued. The firm's wide moat rating remains intact. We also adjust forecasts to consolidate the M5 from fiscal 2019 as Transurban is now the majority owner, though this doesn’t impact our valuation. The M5 was previously equity accounted.

We maintain our AUD 10.50 fair value estimate for wide-moat Transurban following the firm’s investor day. The company highlighted its solid pipeline of potential projects, including continued road widening, network expansions, and upgrades to its tolling technology to drive traffic throughput. That said, we incorporate many of these opportunities into our traffic forecasts for the next several years, which outstrip likely population growth in key areas such as Melbourne and Sydney, and estimate that any incremental projects would have a minimal impact on our valuation.

Wide-moat Transurban’s March quarter traffic and revenue update puts the toll-road operator on track to meet our fiscal 2017 forecast, and we reiterate our AUD 10.50 fair value estimate per security. At the current market quote of AUD 12.00, the securities look slightly overvalued.

We maintain our AUD 10.50 per security fair value estimate for wide-moat Transurban following solid results in the firm’s fiscal first half. We’re encouraged by the firm's increase in expected distributions per security (forecast raised to AUD 51.5 cents per security for the full year from AUD 50.5 cents previously), in line with our belief continued traffic increases and positive mix shift toward large-vehicle traffic (which offers higher yields) will drive a strong 8.5% annual distribution per security CAGR to nearly AUD 0.70 in the next five years. That said, securities remain fairly valued by the market, in our opinion.

After transferring coverage to a new analyst, we're maintaining our wide moat rating and medium uncertainty rating for Transurban, and have trimmed our DCF-based fair value estimate to AUD 10.50 per security from AUD 11.20 per security due to slightly lower near-term traffic growth estimates; our long-term forecasts are largely unchanged. At the current price, the security trades in line with our fair value estimate, appropriately incorporating the risk that prices of yield stocks such as Transurban will likely come under pressure in an environment of rising bond yields, increasing the importance of fair value estimates that reflect long-term intrinsic value.