This morning, Transurban (TCL), the Australian and North American toll road operator, delivered record first-half results with strong revenue growth, traffic levels and profits, not a great surprise if you have been on any of TCL’s toll roads lately . It is amazing that in 2020, some “experts” were calling toll roads stranded assets, with Australians locked up in their homes and groceries delivered by drones. The HWN Equity Portfolio has a 5% weight and the Income a 6% weight to TCL.

Key Points:

  • Record Profit: TCL reported profit growth of +8% to $1.33 billion, driven by a 6% increase in revenue with only a 1% increase in costs. Revenue was strengthened by inflation, which 68% of its roads are linked to, and an increase in the number of people using their roads with the opening of the much-maligned Roselle Interchange and M4-M8 link to Westconnex.
  • Record First-Half Distribution: Transurban delivered a record first-half distribution of $0.30, reflecting a 13% increase from last year.
  • Long-Term Hedged Debt: Transurban has very long-dated debt, with the weighted average date to maturity being just under seven years, with 95% of the debt book having an interest rate hedge in place at an average cost of 4.3%. Here shareholders benefit from the mismatch between revenues linked to inflation (short term reactions) and long term fixed priced debt.
  • Population Growth: A long-term tailwind that will benefit Transurban is continued population growth, which will see more people use toll roads more frequently as cities become more congested with traffic and people start to live further away from their workplaces.
  • Guidance: Transurban reaffirmed the FY24 distribution of 62 cents per security, representing a +7% growth on the FY23 distribution. We are expecting a 66c dividend in FY25

Portfolio Strategy: Transurban is the world’s largest toll road concession operator. We are attracted to Transurban due to its high quality, long life, and monopolistic infrastructure assets. The company has demonstrated an ability to grow distributions ahead of inflation by both raising tolls and developing existing assets by adding extra lanes to accommodate the additional traffic. TCL’s revenues are generally linked to the greater of +4% or CPI and trades on an attractive dividend yield of 5%.

TCL finished down 13c to $13.19