Transurban Group

Strong Fundamentals: Transurban Group (ASX: TCL) is Australia’s largest toll road operator and it currently holds seven of the nine toll road concessions in NSW, including the M1, M2, M5 and M7 motorways. The rise in average daily traffic has helped the group in the long-term, as also seen in latest March quarter update. The group showed splendid performance in first half and recorded proportional toll revenue growth of 10.5% as against prior corresponding period. Toll revenue was driven due to traffic growth and toll price escalation during the same period. Bottom line recorded strong growth of 276.1% on year on year basis with the support of favourable movements in net finance costs and non-cash income tax benefits. RoE substantially increased from 2.8% to 7.2% in 1HFY18 from the past six months. On the balance sheet front, the current ratio stood at 1.48x while debt to equity ratio recorded 2.57x in 1HFY18. Besides this, the company has recently disclosed about the financial close on the acquisition of the A25 toll road asset as the company announced earlier to acquire 100% of equity interest in the A25 for C$840 Mn. The management expects that this acquisition marks an important step for the business as it establishes its second market in North America. The Group will assume responsibility for the management and operations of the A25 after the financial close, which is targeted for Q4 FY18, subject to an Investment Canada Act approval. While proceeding to develop the business through advancement, the group is also focused on enhancing customer experience, engaging with local communities and maintaining its commitment to safety and sustainability.
 

Income Growth by Product (Source: Company Reports)

Meanwhile, the stock prices were up by 6.29 per cent in the past six months as at June 21, 2018 and trading slightly above the 52-week lowest level. The group is expected to maintain resilient performance based on strong fundamentals, network expansion plan, disciplined investment approach, increasing traffic growth across the networks, and North American Opportunity. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 12.21.
 

Tabcorp Holdings Limited

Strategic Review to exit from its Joint Venture ‘Sun Bets’: Tabcorp Holdings Limited (ASX: TAH) has recently informed the market that it has been advised of new race fields fee rates. According to the release, the group has been set by Racing Victoria for wagering on Victorian thoroughbred racing, commencing from July 1, 2018 and proposed for wagering on all Western Australian racing, commencing from August 1, 2018. The group takes a note of the fact that for the first time Racing Victoria has introduced a category for tote derivative bets. Further, the management of the company has clarified that if these had been applied in FY18 then it would have brought down net profit after tax (NPAT) by around $5 Mn. On the financial front, EBITDA margin expanded by 280 bps and recorded 21.4% in 1HFY18 as compared to previous six months. Net margin turnaround was in positive territory to 1.8% in 1HFY18 from previous six months (-7.4%), despite the higher effective tax rate (72.4%) during the period. The current ratio and debt to equity ratio stood at 0.62x and 0.53x, respectively in 1HFY18.

Besides this, the group proposed early exit from its UK-facing Sun Bets online gambling joint venture as the Sun Bets performance remained unsatisfactory in first half of the year. The management confirmed that they were in discussion with News UK about the premature evacuation. These discussions remain ongoing and an agreement has not been reached at this stage. The company has begun collective consultation with Sun Bets employees regarding the proposal, which is in line with UK employment law obligations. Meanwhile, TAH share price has fallen by 17.51% in the last six months but up by 3.86% in the last three months as on June 21, 2018. Based on foregoing development, we maintain “Hold” recommendation on the stock at the current price of $4.54.

1HFY18 Financial Highlights (Source: Company Reports)

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