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Transurban lifts revenue but profit drops

Lex Hall with AAP  |  12 Feb 2019Text size  Decrease  Increase  |  
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Transurban's first-half profit has fallen 61.8 per cent to $129 million after its costly acquisition of Sydney's WestConnex motorway scheme.

Toll revenue rose 14.7 per cent following a 2.7 per cent increase in average daily traffic across the company's roads, but various expenses and a $163 million increase in depreciation and amortisation pushed profit attributable to security holders down from $338 million a year ago.

west connex transurban toll roads

Costly acquisition: Sydney's WestConnex motorway scheme

Nonetheless, the earnings by which Transurban assesses performance rose 9.8 per cent to $1 billion and the company on Tuesday raised its interim distribution by one cent to 29 cents.

The increase in revenue was driven by a $52 million increase from existing assets - driven by traffic growth across both Australian and North American networks - as well as a $115 million contribution from the acquisition of Montreal's A25 and its increased stake in Sydney's M5.

Transurban shares closed down 24c, or 1.93 per cent, to $12.22, an 11 per cent premium to Morningstar's fair value estimate of $11.

Morningstar analyst Adrian Atkins applauded the result, but not enough to lift his valuation.  

"We consider the stock marginally overvalued at current prices. Transurban's security price has improved recently as global central banks tone down expectations for interest rate increases," Atkins said.

"This trend could have further to go, but we think interest rates will trend higher over the longer term and this will detract from the attractiveness of income stocks such as Transurban. 

"Transurban is a good quality stock, but a distribution yield of less than 5 per cent mostly unfranked isn't much to get excited about, especially considering the finite life of assets. Its average concession life remains around 30 years." 

. Lex Hall is content editor with Morningstar Australia

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