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Virus lowers the boom gate on Transurban earnings – for now

Mark LaMonica, CFA  |  13 Aug 2020Text size  Decrease  Increase  |  
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Wide moat-rated toll road operator Transurban will endure a couple more years of covid-induced pain before traffic volumes return to pre-pandemic levels, says Morningstar.

Transurban Group (ASX: TCL) reported a net loss in the 2020 fiscal year as covid-related lockdowns reduced traffic volumes.

The company posted a net loss of $111 million in the 12 months through June, compared to a profit of $171 million a year ago and was largely driven by a fourth quarter where toll revenue fell 33 per cent. The reduction in toll revenue offset toll increases and the completion of developments.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane.

Transurban (TCL) 1YR

Source: Morningstar Premium

Despite the extended lockdown in Melbourne, Transurban chief executive Scott Charlton said Transurban remained in a strong position to pursue opportunities emerging within its core markets.

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"Long-term and proactive management of our balance sheet and organisational capability means we are able to pursue the significant pipeline of opportunities in our existing markets," he said.

"As always, this will be balanced alongside maintaining our strong investment-grade credit metrics and distributions for security holders."

Morningstar senior equity analyst Adrian Atkins sees developments as a key driver of forecast near-term earnings growth.

Fiscal 2021 earnings should benefit from completion of the M8 tunnels, the M5 East and NorthConnex in Sydney, and a full-year contribution from the 395 Express Lanes in the US

Despite the new developments coming online, Atkins expects only modest improvements in traffic volumes during fiscal 2021 followed by a strong rebound in 2022 where he forecasts a return to fiscal 2019 levels.

“We expect only modest improvement in like-for-like traffic volumes in fiscal 2021, with a stronger recovery in fiscal 2022 helping traffic volumes return to fiscal 2019 levels,” Atkins says.

Transurban’s share price has fallen 7.5 per cent year to date but Atkins still sees the share price approximately 15 per cent overvalued and maintained his $12 fair value estimate.

Transurban did not provide distribution guidance but Atkins has forecast distributions of 42 cents per security in 2021, compared with 47 cents in 2020.

However, he expects this to accelerate to about 70 cents per share in five years as traffic volumes recover, tolls continue to ratchet higher, and developments complete.

“Despite the growth we expect next year, higher interest expense, a lower payout ratio and some underlying roads withholding distributions are likely to keep distributions to securityholders under pressure in 2021.”


This article is part of Morningstar's Reporting Season 2020 coverage. The calendar will be updated daily to connect you with our equity analysts' take on the financial results.

is a product manager, individual investor, Australia.

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