Toll road operator Transurban has announced a blockbuster result this morning only to see the stock trade lower from the outset. Revenue grew 21%, while the net profit line more than doubled last year’s figure, however the company downplayed the pipeline for growth, and investors seem to be questioning the progress on WestConnex.
The result was broadly in line, most importantly the dividend met expectations both in the current period and guidance into FY19. This appears to be the pressure point for investors, as while the dividend met guidance, the company claimed future dividends will not be impacted by a successful WestConnex bid –the company is looking to continue to grow, while paying a reasonable dividend which ultimately means increasing debt significantly, or raising capital.
Transurban (TCL) Chart
Market Matters Take/Outlook
In any case, Transurban has a number of high quality, long life assets which is great to invest in, but bond-like returns will come under pressure as rates rise. A Catch-22 scenario is appearing for Transurban at the moment – either hurt investors looking for a bond like equity by dropping the dividend to invest in growth, raise capital to invest or maintain the status quo and increase the risks in the business. In our view, whether it is for WestConnex or any number of other projects that Transurban may look to get involved in to maintain growth, a capital raise could be on the cards and shares will struggle until some more clarity is given.
The result was broadly in line, most importantly the dividend met expectations both in the current period and guidance into FY19. This appears to be the pressure point for investors, as while the dividend met guidance, the company claimed future dividends will not be impacted by a successful WestConnex bid –the company is looking to continue to grow, while paying a reasonable dividend which ultimately means increasing debt significantly, or raising capital.
Transurban (TCL) Chart
