TCL 0.55% $11.05 transurban group

Toll Roads and the Economy

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    From Business spectator

    Wide open roads beckon investors



    Transurban chief executive Scott Charlton makes a valid point when he says the states are not doing enough planning for long-term infrastructure projects.

    There has been a legacy of at least a decade of under-investment in infrastructure at both the federal and state levels, with the windfall budget surpluses from the “once in a lifetime” commodities boom frittered away by the Howard government on tax cuts for the well-off and middle-class welfare. (An exception was the establishment of the Future Fund.)
    With just a hint of self-interest given Transurban owns most of the country’s toll roads, Charlton says Australia should be planning at least 30 years ahead.
    “There is no long-term plan I can see for Melbourne. New South Wales has started down that path with the creation of Infrastructure NSW,” Charlton said.


    He says there are “significant” network development opportunities not only in Transurban’s home market but in the United States as well, where the group has two tollways in Virginia just outside Washington DC.



    However, changes of government in Victoria and Queensland may put a brake on some ambitions, although new technology should roll out as planned in Queensland regardless.
    The Australian Competition and Consumer Commission weighed in on the federal government’s asset recycling plan this week, cautioning against the hasty sale of public assets to raise money for infrastructure spending if the outcomes are uncompetitive.
    In Victoria, the widening of the CityLink Tulla is under some question after the East West Link was dumped (or “suspended” as the slide presentation coyly puts it), but the company says it is talking with the new Andrews Government about the plans to add lanes to boost capacity 30 per cent.
    Transurban’s proportional results, which take into account the company’s percentage stake in each toll road asset, showed a 9.8 per cent increase in toll revenue and a 13.6 per cent rise in earnings excluding acquisitions.
    Net earnings swung to a net loss of $354m, due to $406m in acquisition costs for its lead role in the $7 billion Queensland Motorways consortium acquisition last year. Of that, some $384m went in stamp duty.
    Underlying earnings including the QML and other acquisitions rose 37.4 per cent on the back of a 36.7 per cent rise in toll revenues. In Sydney, toll revenues were up 11.1 per cent and in Melbourne up 7.2 per cent.
    Among its projects, work is due to start on the NorthConnex motorway in north-west Sydney in May and the widening of the M5 has just been completed, which added 50 per cent in capacity.
    Transurban also nudged up its distribution guidance for fiscal 2015 to 39.5 cents, up from previous guidance of 39 cents and compared with 35 cents in 2014. Investors gave a brief welcome to the increase in distribution, pushing Transurban shares up 1.6 per cent in early trade before they settled to close down 0.8 per cent.
    Investors have favoured Transurban’s solid 4.2 per cent dividend yield, driving its shares 35 per cent higher over the past 12 months. Despite the high share price, just over half of the analyst community remains bullish on the outlook, citing the group’s defensive characteristics and toll traffic that is likely to increase at least in line with urban population growth.
 
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