Transurban Full Year Result: TCL profits driven higher by lift in toll road traffic


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Toll road operator, Transurban (TCL) posted a mixed set of numbers for the year to 30 Jun 2017. A strong gain in traffic across most of its major toll roads (Sydney, Brisbane and the Greater Washington Area) helped lift revenue above forecasts. While underlying profits also beat forecasts, net profit (despite surging almost 10 fold) fell slightly short of hopes. 

The massive 850% jump in net profit over the year was partly due to costs associated with its $1.9bn acquisition of the Brisbane Airportlink M7 toll road in FY16. This hurt the prior year’s result, which in turn has accentuated earnings in FY17. Excluding these significant items, net profit still rose by a respectable 41%. 

Its Australia operations – which generate ~95% of its earnings – improved strongly in NSW, VIC and QLD. TCL said its Sydney network (40.5% of toll revenue) continues to perform well with large vehicle growth while M2 traffic was impacted by NorthConnex construction works which will link the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills. This will be the longest road tunnel project in Australia and is expected to remove ~5000 trucks from roads daily. Melbourne – its second biggest earner – lifted earnings more modestly due to lower traffic numbers following construction interruptions. Brisbane (17.9% of toll revenue) enjoyed the fastest earnings lift thanks to traffic growth improving, particularly with larger vehicles. US operations improved most over the year, with underlying earnings (EBITDA) jumping by 28.9% thanks to the continued ramp up on the 95 and 495 Express Lanes in Washington D.C. 

TCL will pay investors a $0.265 final distribution on 11 August 2017, which takes annual payments to $0.515. TCL’s distribution receives attention from investors for its reliability, particularly in a low interest rate environment which makes higher yielding companies more attractive. The group has been making distributions to investors since 1996. While the amount paid took a hit in 2008, they have steadily raised payments since 2009 and yields 4.3%. Looking ahead, TCL is targeting a ~9% lift in distributions for FY18 and intends to pay a slightly lower than expected~$0.56/unit to investors. 

TCL shares are coming under pressure, with investors disappointed with slightly softer guidance for its distributions for the year ahead, although this could yet be lifted in coming months. TCL shares have improved for six days and is outperforming the market Year-to-Date. Since Jan 2017, TCL is up ~12%, which compares to a ~1% gain for the ASX 200. 

Looking ahead, TCL has $9 billion of developments in the pipeline which the company says are ‘on time and on budget’ and is seeking further development/growth opportunities. Increasing global bond yields can be a negative for TCL, as the low rate environment has motivated investors to seek yield in consistent dividend payers like TCL while it almost can make the servicing of its ~$13.6 billion of debt more costly. 

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