Two Infrastructure Stocks to Sell

Transurban Group


TCL Details

Boosting capital position to fund acquisitions and improve flexibility: Transurban Group (ASX: TCL) reported that Transurban Queensland (wherein TCL has 62.5% stake), has priced A$280 million of senior secured 7 year notes in the Swiss market, as a part of its Euro Medium Term Note Programme. Transurban Queensland has acquired AirportlinkM7 for $1.87 billion, plus stamp duty of $108 million and transaction costs of $23 million to enhance its network position in Brisbane. Moreover, Lane Cove Tunnel, 100% owned by Transurban has raised $460 million via a new non-recourse debt facility, with a weighted average tenor of over nine years which would be used to immediately repay $260 million of existing Lane Cove Tunnel debt maturing in August 2016. The additional $200 million of funds raised, as permitted under the Lane Cove Tunnel Project Deed, would be used to repay the existing debt at the Transurban group level. The additional fund will be available by early of FY 17.
 

Managing funding risk (Source: Company Reports)
 
Transurban has made an agreement with the Victorian Government on the key steps for the progression of the Western Distributor project for which the estimated cost would be identified in 2017, while the project work will start in 2018 and finished by 2022. As a result, TCL stock has risen 18.95% in the last six months (as of June 15, 2016). However, TCL operates in a capital intensive environment as well as depends upon the regulatory bodies for the project execution. In addition, we believe that the recent rally in the stock has placed TCL at higher levels. Based on the foregoing, we give a “Sell” recommendation on this dividend yield stock at the current price of $11.75
 

TCL Daily Chart (Source: Thomson Reuters)
 
Sydney Airport Holdings Ltd


SYD Details

Improving traffic performance: Sydney Airport Holdings Ltd (ASX: SYD) has reported a huge traffic growth for the month of April, wherein Sydney Airport traffic performance rose by 7% during the month against the prior corresponding period, driven by the international Airport traffic performance rise of 10.6% during the period. Qatar Airways would start its flight A380 having 517 seats to Sydney from September which means an additional 133,000 seats per annum or a total (including those previously announced) of 378,000 seats annually. Air Vanuatu has increased from five to six weekly flights to Port Vila, from 01 June to 31 August on a B737-800 aircraft and Qantas announced an increase for its daily Christchurch service, up to 12 times weekly, from 27 June to 28 October on a B737-800 aircraft. Meanwhile, SYD is boosting its capital position to leverage the booming tourism market opportunity and diversified its debt sources and long term maturity profile while having fixed or hedged 90% of debt portfolio.
 

Sydney Airport traffic performance (Source: Company reports)
 
The group raised US $900 million (A$1.2 billion) on debt capital markets to repay bank debt, unlock liquidity and fund investment. The company even enhanced its distribution guidance of 30 cents per stapled security for 2016 which is a rise of 17.6%. SYD has already rallied 7.76% (as of June 15, 2016) in the last three months, placing the stock at unreasonable P/E. Accordingly, we give a “Sell” recommendation on the stock at the current price of $7.00
 

SYD Daily Chart (Source: Thomson Reuters)

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