Transurban Group
Transurban poised for growth, driven by acquisition and robust fundamentals: Transurban Group (ASX: TCL)is one of the world’s largest toll-road operators. The company is into designing and building new roads, researching new vehicles and road safety technology. It is partnering with the governments to address several safety and traffic challenges and is undertaking major development projects to create more efficient transport routes and ease congestion. Recently, the company has successfully reached financial close in relation to a $600 Mn non-recourse senior bank debt construction facility for the M4-M5 Link. The aforesaid facility has a tenor of 7 Years. The interest rate has been fully hedged for the tenure of the loan. TCL owns 25.5% interest in West Connex. Moreover, the group declared fully franked interim dividend of 29 cents per share which will be paid on February 15, 2019, representing a dividend rise of 3.6% as compared to the previous corresponding period. In addition to this, the Group has reiterated its distribution guidance for FY19 to 59 cents per share.
Dividend Trend (Source: Company Reports)
On the financial front, the toll revenue increased by 8% Y-O-Y to $2,249 million, however, the total revenue stands at $3,298 million for FY 2018 an increase of 20% approximately. The profit from ordinary activities after tax excluding significant items increased 134.3% to $489 million in FY 2018. The current ratio of the company significantly increased by 37.4% in FY 2018 on the back of an increase in cash & cash equivalents and receivables. The net CFO increased significantly in FY 2018 to $1,053 million, an increase of 25%. The company borrowings decreased by almost 70% in FY 2018 Y-O-Y resulting to a reduction in net finance cost as well. However, the company raised $4.8 billion with minimal repayment in FY19. The total assets increased by almost 13% Y-O-Y. The free cash marginally decreased by 0.5% to $1,215 million in FY 2018. The company maintained an impressive asset turnover ratio with the rise of 12.5% to 0.13x in 2018 over the prior year. RoE and RoCE substantially increased from 5.0% and 1.0% in FY17 to 10.1% and 2.3%, respectively in FY18.
Meanwhile, the share price has risen 5.17% in the past three months as at January 07, 2019 and is trading at a PE multiple of 51.060x with a market capitalization of $30.96 billion. Driven by strong growth in revenues, margins, operating cash flow and multiple project deals closed in FY18, the company is poised for decent performance in the upcoming years. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $11.570.
Sydney Airport
Strong revenue growth coupled with higher liquidity: Sydney Airport (ASX: SYD) has an objective of delivering world-class airport experience and encourage the growth of Sydney Airport for the benefit of Sydney, NSW, and Australia. The company wants to be an industry leader, to drive responsible growth, which will balance social and environmental needs with corporate objectives.
Key Highlights:
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In April 2018, Sydney Airport successfully issued a EUR500 million ($796 million) 10-year Euro bond. These debts were used to repay drawn bank debt, unlocking additional liquidity to cover debt maturities and fund planned ongoing investment.
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Strong liquidity position enhanced, with $1.4 billion in undrawn bank debt facilities available as at 30 June 2018.
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Debt maturity profile lengthened, with average maturity extended four months to mid-2024, and smoothened with less than 15% of debt maturing in any one year.
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International passenger growth has been robust for 2018 year to date, up by 4.8% on the prior corresponding period.
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Operating and Financial Metrics(Source: Company Reports)
On the analysis front, the company has consistently maintained decent Net Margins over the past few years. For 1HFY18, the net margin came in at 22.5% compared to the industry average of 22.6%. Over the period, the company has also generated a significant return for the shareholders with ROE at 35.3% against the industry average of 6.1%. On the other hand, the company has maintained its average account receivable days of 40 days in FY18 which is less than the industry average of 57.5 days. Meanwhile, the share price was down by 10.0 per cent in the past six months (as at January 07, 2019) and is trading at PE multiple of 41.480x with a market capitalization of $14.82 billion. Although, the company is heavily dependent on debt, however, driven by strong growth in revenues and liquidity, and marginal improvement in debt service coverage, during the first half of FY 2018, the company might continue its decent fundamental trend in years to come. We, therefore, suggest to investors that they should keep a close “Watch” on the stock at the current market price of $6.550.
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