Transurban Group (ASX:TCL)

Increase in Average Daily Traffic- 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. It was observed that the average daily traffic has been increasing and this will be helping the Group in the long-term. 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 per cent of equity interest in the A25 for C$840 million. The Group’s major project, West Gate Tunnel Project is expected to be completed in 2022 and this will add value to the toll road giant’s performance. It was observed that the Average Daily Traffic (ADT) increased by 2.7 per cent in March Quarter 2018, with growth across all Australian markets.


Cost of Debt Trend (Source: Company Reports)

The Group believes that this acquisition will be an important step for the business as it establishes its second market in North America and will further start operating theA25 after the financial close, which is targeted for Q4 FY18, subject to an Investment Canada Act approval. The Group is focussed on enhancing customer experience, engaging with local communities and maintaining its commitment to safety and sustainability. Transurban declared a distribution of 28.0 cents per stapled security for the six months ending 30 June 2018. It was observed that Debt market conditions continued to remain positive for Transurban’s debt refinancing pipeline as currently observed market interest rates were below the Group’s average cost of debt. Further, TCL announced that Eastern Distributor (ED) successfully raised $226 million of non-recourse debt via a new bank debt facility with a tenor of 4 years.

The Group focuses on geographic diversification into the additional North American market and has a potential for network expansion and has a demonstrated history of market-led negotiations. It has the abilities for additional traffic growth, a better commercial activity which will lead to higher freight volumes. In the meanwhile, Commonwealth Bank of Australia ceased to be the substantial holder of the Group since 22 June 2018. TCL expects to leverage from improving economic landscape with growing population, better average daily traffic, inflation-linked tolls, and EBITDA margin drivers like A25. The stock was down by 2.58 per cent in the past six months and it is worth noting that the stock was up by 161.34 per cent in last 10 years (as at July 02, 2018). We give a “Buy” recommendation at the current market price of $12.20 by looking at the traffic growth which is going to increase in future and the management is confident that it will continue to maintain resilient performance based on strong fundamentals, network expansion plan, barriers to entry, and disciplined investment approach. The group is also relying on technology when it comes to helping consumers on data analytics through tools such as trip compare tool (toll travel trip compare tool), and the success of these initiatives can give significant upside to the stock.

 
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