TCL 1.21% $12.55 transurban group

Benefitting from Mining Slowing

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    Mining slowdown boosts Transurban traffic as workers return to cities

    February 12, 2015 - 5:35PM
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    Jenny Wiggins

    Transurban chief executive, Scott Charlton. Photo: Wayne Taylor
    Transurban's traffic flows are benefiting from the slowdown in mining activity as workers return to cities in search of jobs, according to the tollroad group's chief executive, Scott Charlton.
    "As the mining boom goes from the construction phase into the operation phase, I don't know if it's people moving back to the cities or governments seeking to spend money on infrastructure in the cities, but clearly we've seen strong traffic numbers, particularly in Sydney, and that can be driven by increased housing activity," Mr Charlton said.
    Transurban benefits from urban population growth and housing development on the east coast because it generates most of its income from toll fares paid by drivers using its roads in Sydney and Melbourne.
    Low interest rates are helping support the national housing market, with the total number of new homes approved in December 2014 up 8.8 per cent on a year earlier, according to the Housing Industry Association.
    An 11 per cent per cent rise in toll fare revenues on Transurban's Sydney roads in the first half of fiscal 2015, and a 7.2 per cent rise in similar revenues on its Melbourne roads helped boost the company's underlying group profits.
    Beating expectations

    Underlying earnings before interest, taxation, depreciation and amortisation (EBITDA), which measure income relative to Transurban's stakes in its tollroad assets, rose 37 per cent to $636 million in the six months to December, beating analysts' expectations.
    The earnings increase enabled Transurban to raise its full-year dividend guidance to 39.5¢ from 39¢, with the group paying an interim dividend of 19.5¢ compared with 17¢ in the year-earlier period.
    But the company reported a first half statutory net loss of $354 million as it absorbed costs related to its $7 billion acquisition of Queensland Motorways' tollroad portfolio last year, including $384 million of stamp duty.
    Excluding $406 million of acquisition costs, Transurban generated a first half profit of $52 million, down 35 per cent on a year earlier, partially due to higher interest costs.
    'On track' with integration

    Mr Charlton said Transurban was "on track" with its integration of Queensland Motorways, which owns four tollroads and is building a fifth road, the Legacy Way Tunnel. A likely change of government in Queensland, where the Labor party expected to form government following last month's state election, would not derail integration plans, he said.
    "We're not aware of any political issues around roads raised by the Opposition," he said.
    In Victoria, which has also had a change of government, Transurban is in talks with road authorities over how it will complete the widening of the Tullamarine freeway following the Labor government's suspension of Melbourne's East West Link motorway. East West Link had been designed to connect with the freeway, and some six kilometres of the Tullamarine widening was going to be built by East West Link contractors.
    Mr Charlton said Transurban's contract to widen the freeway had an "adjustment mechanism" that allowed it to complete the missing link in the event of problems with East West link. "We're finalising that process with the different agencies and the government but we're still on schedule for October to commence construction." The project is expected to be complete in early 2018.

    The controversy over East West Link showed why governments and companies needed to get community support for big infrastructure projects before proceeding with them, Mr Charlton said. "It's beholden on all parties – the government and the private sector – to demonstrate to the community the value [of projects] and to try and win bipartisan support," he said. "You need to make sure you've got that community acceptance."
    Mr Charlton said state governments should plan infrastructure projects 30 to 50 years ahead to avoid projects being scrapped. "There is not a real long-term plan I can see for Melbourne."
    Ian Myles, analyst at Macquarie, said Transurban continued to cut costs and opportunities to invest money remained "relatively robust."
    Transurban is considering future expansion projects in the US near Washington DC, where it already operates two tollroads. The state of Virginia wants to expand its I-66 motorway and add express lanes. "That's like to come to tender this year and we're likely to have a look at it," Mr Charlton said.
    The company will consider more acquisitions if assets become available, but does not expect Brisbane tollroad Airport Link, owned by Brisconnections, to be put up for sale in the short term. Macquarie Bank controls more than one third of Brisconnections' debt and has been resisting a sale. Brisconnections went into administration two years ago.
    Transurban's shares closed down 7¢ at $9.23. The stock is up 36 per cent over the past 12 months compared with an 8 per cent rise in the S&P/ASX 200.

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