Transurban (ASX: TCL) shares are down 2.5% after giving the market an update.
What is Transurban?
Transurban owns and operates 15 toll roads in Melbourne, Sydney, and the greater Washington area. Revenue growth is derived from traffic growth and their very own rivers of gold – inflation protected toll prices. CityLink in Melbourne is Transurban’s biggest asset, in 2018 this accounted for approximately 32% of their total toll revenue – working out to be about twice the size of the roads in Brisbane.
Transurban update
Transurban said that traffic is improving with the recovery directly tied to government responses. There are different trends developing across different markets, so future performance will depend on government actions and the overall economic conditions.
The toll road operator said that, in the 14 June 2020 week compared to the prior corresponding period, Sydney traffic was down 9%, Melbourne traffic was down 31%, Brisbane traffic was down 14% and North American traffic was down 43%. Across the group, traffic was down 21%.
Transurban continues to work with its contractors and governments to deliver its portfolio of large projects, which is helping people stay employed and supports the supply chain.
Distribution
The toll road business has announced an FY20 second half distribution of 16 cents per share, taking the full year distribution to 47 cents per share. That brings the yield to 3.2%.
Transurban said the FY21 distribution is expected to be in line with its free cashflow, excluding capital reserves.
Summary
Clearly Transurban’s traffic is on the road to recovery. However, I’m not sure if it is good value at this price. The share price has largely recovered and the interest rate is very low – which helps the valuation of Transurban. However, conditions remain uncertain and toll roads seem somewhat like a discretionary service, people could choose to go other roads to save money in the economy remains tough for longer than expected.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
