Transurban Group

Distribution Reinvestment Plan: Transurban Group (ASX: TCL) is an owner, operator and developer of electronic toll roads and intelligent transport systems. The market capitalistion of the company stood at ~A$39.41 Bn as on 19^th June 2019. Recently, the company made an announcement in relation to the Distribution Reinvestment Plan. The DRP would operate again for the distribution for the six months ending 30 June 2019. The Board of Directors stated that the pricing period with respect to distribution would be the period 10 trading days beginning from 4 July 2019.

In relation to final distribution, TCL had provided information about the distribution totaling 30.0 cents per stapled security for the six months ending 30 June 2019. The above stated distribution amount comprised of 28.0 cent distribution from Transurban Holding Trust and controlled entities and a 2.0 cent fully franked dividend from Transurban Holdings Limited and controlled entities.

A Quick Look at Investor Day Presentation: The company published its investor day presentation wherein it communicated about focused execution and sustainable growth of the North America market. The company is focused on growing its sustainable business model. The focus is also on a strong and growing customer base. In addition, it is also focused on increasing value for clients, communities, and securityholders.

North America Revenue (Source: Company Reports)

What to Expect From TCL: The company’s near-term priorities include delivery of committed projects, maximizing the operational performance as well as enhance customer and community offerings. TCL is positioning for future transport opportunities. It is monitoring future developments and remain proactive in capturing new opportunities.

Stock Recommendation: In the longer term, the capital releases give funding flexibility, with proceeds used to manage credit metrics, enhance distributions, and fund development pipeline.The EBITDA margin of the company stood at 46.7% in 1H FY19 in comparison to the industry median of 46.4%. On the stock’s performance front, it had generated a return of 15.89% and 24.20% in the time span of three months and six months, respectively.

Also, as per the release dated May 21, 2019, Transurban had confirmed that it would be holding 2019 Annual General Meetings of shareholders of Transurban Holdings Limited and Transurban International Limited in conjunction with the meeting of unitholders of Transurban Holding Trust on October 10, 2019.

Considering the aforesaid facts and decent outlook, we maintain our “Hold” rating on the stock at the current market price of A$14.950 per share (up 1.494% on 19^th June 2019).

Sydney Airport

Update on SAT1 Indemnity: Sydney Airport (ASX: SYD) is owned by SAL group. It consists of Sydney Airport Limited (SAL) and Sydney Airport Trust 1 (SAT1). The investment policy of SAL is to invest fund in accordance with the provisions of the governing documents of the individual entities within the group. Recently, the company made an announcement in relation to the decisions of the Court of Justice of the European Union following the finalization and release of the company’s 31 December 2018 financial Report. The recent decisions have prompted reconsideration of the status of indemnities provided by Sydney Airport Trust 1 with respect to the 2011 sale of Copenhagen Airport.

The company further added that the decision made by ECJ was not related to the two tax disputes covered by the SAT1 indemnities. SAT1 had assessed that some or all of the $119.1 Mn non-current receivable in the 31 December 2018 financial report relating to the indemnity previously paid might need to be expensed and a future call on its indemnities is possible which is up to a maximum of $61 million as at 30 June 2019.

A Quick Look at AGM Presentation: With respect to Non-aeronautical business, it was stated that this is a resilient business model with diversified businesses and revenue streams and large proportion of revenues are being supported by minimum guarantees. In FY18, the company witnessed a rise of approximately 6.8% in revenue and stood at $1,584.7 Mn and the net operating receipts stood at $860.9 Mn. However, the total passengers stood at 44.4 Mn, demonstrating an increase of around 2.5%.


Total Passengers (Source: Company Reports)

What to Expect: The company reaffirmed the distribution guidance for 2019 to be 39.0 cents per security and it is expected to be more than fully covered by Net Operating Receipts. SYD is expecting to start paying cash income tax from the 2022 calendar year, which is subject to underlying operational performance and capital investment opportunities. The future cash tax payments would be giving rise to franking credits and these would be distributed to the eligible investors.

Stock Recommendation: With respect to non-aeronautical business, it was also mentioned that the business metrics are well-positioned as there are Strict investment hurdles as well as there is a capital investment opportunity.
Coming to the stock’s past performance, SYD had witnessed a rise of 3.75% and 10.10% in the time span of three months and six months, respectively. As per ASX, the stock is trading at its 52-weeks higher levels of A$7.920. Hence, considering the aforesaid parameters and current trading level, we give an “Expensive” rating on the stock at the current market price of A$7.920 per share (up 2.326% on 19^th June 2019).  

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