2 Stocks in Infrastructure Sector to buy – BLD and TCL

With the recent Federal Budget announcement, the government has flagged to have a $24 billion infrastructure package that will fund key road and rail projects across the country. In the wake of this announcement, stocks like Transurban Group (ASX: TCL) with an annual dividend yield of over 4.5% and Boral Limited (ASX: BLD) with an annual dividend yield of 3.68% are looking to come at the sweet spot.

Boral Limited

BLD Details

Sale of US Concrete & Quarries business: Boral Limited (ASX: BLD) stock edged up 2.1 per cent on May 11, 2018 post announcement of acceptance to sell US Concrete & Quarries business to Brannan Sand and Gravel for US$127 Mn. The sale price represents a trailing 12-months EV/EBITDA multiple of around 8 to 9 times. The transaction is expected to complete on or around 31^st May 2018 and is subject to customary regulatory approvals. The Group flagged a pre-tax profit on sale of around US$45 million subject to customary completion adjustments, which will be reported as a significant item in FY18 financials. Further, the group will use sale proceeds to strengthen its balance sheet by deleveraging its debt part. As at December 2017, the Group had net debt of $2.4 Bn with the gearing ratio of 30% which is expected to get reduced to ~25% in the upcoming years. As the group continues to strengthen its core business and deliver synergies from the Headwaters acquisition, the time is right for Boral to realize value by divesting the construction materials business in Colorado. In addition to this, the management stated that while the Colorado construction materials business has performed well, these are the only concrete and quarry operations that Boral owns in the USA and the business is non-core.


Debt Maturity Profile (Source: Company Reports)
 
Of which, the US Concrete & Quarries business contributed US$52 million of revenue to Boral North America in the first half of FY18. On the other hand, the North America business will deliver earnings uplift in second half of around 10-25% at the back of expectations of a favourable June quarter. Therefore, we believe that the group can continue to deliver a steady performance and strengthen its financial position in years to come despite the latest softness depicted in the trading update for Boral North America. Primarily, the group can benefit from lower effective tax rate and higher property earnings with offloading of non-core assets. We give a “Buy” recommendation on the stock at the current market price of $ 6.790.
 

BLD Daily Chart (Source: Thomson Reuters)
 

Transurban Group

TCL Details

Expecting growth at the back of ongoing developments:Transurban Group (ASX: TCL) seems to be a good choice when it comes to infrastructure sector. The group’s overall performance and broader pipeline of various projects is expected to support growth of the company in years in come. The group aims to lay down various multi-modal transport solutions. Its reality asset tour app (Transurban 360) has been stated to be launched via Apple app store. The group recorded revenue growth of 21.9% to $1,624 Mn in 1HFY18 as compared to previous corresponding period (pcp). Profit from continuing operation came at $331 Mn in 1HFY18, showing significant growth on Year-on-Year (YoY) basis. Recently, the group released its March 2018 quarter update and during same the period, Average Daily Traffic (ADT) recorded growth of 2.7%, with growth across all Australian markets.Further, Transurban’s development projects continued to progress throughout the quarter. In addition, the group reached agreement in March to acquire the A25 in Montreal for C$840 million. The acquisition will provide great access to a second North American market with a growing population. The Group will assume responsibility for the management and operations of the A25 after financial close, which is targeted for Q4 FY18, dependent on requisite approvals. Besides this, the group’s main aim is to become a partner of choice, with governments providing effective and innovative urban road infrastructure and services, while utilising core capabilities. The group achieved a significant growth in last 10 years and is consistently growing distributions. Further, the Group lately indicated for $11.4 billion of new developments and asset enhancements and $7.7 billion of acquisitions.


Significant Opportunities (Source: Company Reports)
On the other hand, one of its Director Robert John Edgar, having an indirect interest in the Company acquired 6,000 stapled shares through on-market trade, as at May 08, 2018. The stock price was down by 6.43 per cent in the past six months but in the past one month thestock price recovered by 4.92 per cent as at May 10, 2018. We give a “Buy” recommendation at the current price of $11.860.
 

TCL Daily Chart (Source: Thomson Reuters)

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