Transurban Group

TCL Details

Opening of M8 Project in Sydney: Transurban Group (ASX: TCL) is an owner, operator, and developer of electronic toll roads and intelligent transport system. As on 23 July 2020, the market capitalization of the company stood at ~$37.69 billion. The company has recently opened the M8 Project and commenced tolling on the M5 East. This will help relieve traffic on the M5 East, one of the most congested motorway corridors in Sydney. The opening of the M8 is also an important milestone in the WestConnex project. In another announcement, TCL stated that it lodged a notice on the Singapore Exchange to redeem and delist €500 million of notes issued under its Euro Medium Term Note Programme.

FY20 Distribution: The company has recently announced a distribution of 16.0 cents per stapled security, taking the overall FY20 distribution to 47.0 cents per security. The distribution will be unfranked and will be paid on 14 August 2020 from the Transurban Holding Trust and controlled entities. The company has also announced that the security holders representing 2.54% of issued capital have elected to participate in the Distribution Reinvestment Plan. The DRP issue price is $13.8141 per stapled security and will rank equally with existing securities. The company expects to release its FY20 results on 12^th August 2020.

Trading Update: During the quarter ended March 2020, Average Daily Traffic decreased by 4.8% because of the significant impact of restrictions in movement mandated by the Government due to COVID-19. However, the company has seen progressive traffic recovery, in-line with the easing government restrictions. During the quarter, TCL raised $2.1 billion of new debt facilities, including $1.3 billion in new working capital facilities.

Transurban Traffic by Week (Source:  Company Reports)

Outlook: TCL seems to be well-positioned for the recovery and is engaged with industry and governments on a pipeline of potential infrastructure projects to support the economy and drive growth. The company anticipates that the FY21 distribution will be in line with free cash, excluding capital releases.

Key Risks: Government cautions remain to avoid secondary waves of infection, with traffic levels still subdued. While restrictions are progressively easing across markets, social distancing measures prevail which have the potential to influence traffic through the recovery.  

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has successfully reached financial close on its issuance of €150 million of senior secured 10-year notes under its Euro Medium Term Note Programme. With the improving traffic volumes and a decent capital position, TCL remains well poised for emerging opportunities to support the economy and drive growth through the recovery phase. As per ASX, the stock of TCL gave a return of 10.15% in the past three months. The stock is currently trading towards its 52-week high of $16.44. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of low double-digit (in percentage terms). For the said purposes, we have considered Atlas Arteria Group (ASX: ALX), CIMIC Group Ltd (ASX: CIM), etc., as peers. Considering the current trading levels, decent returns in the past three months, improving traffic volumes and healthy capital position, we recommend a ‘Hold’ rating on the stock at the current market price of $13.86, up by 0.581% on 23 July 2020.

TCL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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