Infrastructure stocks are relatively scarce on the ASX, particularly businesses with the scale, asset quality and inflation-linked revenue profile of Transurban (TCL). The company owns a portfolio of difficult-to-replicate toll roads across Sydney, Melbourne, Brisbane and North America, with traffic growth and contracted toll increases supporting a relatively dependable and growing distribution.
Near-term traffic has been softer than expected, with Group traffic growth remaining subdued through the June quarter. Sydney was broadly flat, Melbourne benefited from the West Gate Tunnel, while Brisbane was affected by heavy rainfall. Higher fuel prices and construction disruption also appear to have weighed on usage.
The operating outlook should improve in FY27 as disruption around the M7–M12 corridor eases and the West Gate Tunnel continues to ramp up. Transurban has also sold its 50% interest in Montreal’s A25 toll road for C$280 million, crystallising value but removing the asset’s earnings contribution from FY27.
NSW toll reform remains the major uncertainty. Any reduction in tolls across western Sydney would likely need to be offset through compensation, alternative revenue sources or changes elsewhere in the network. Given Sydney represents close to half of Transurban’s underlying asset value, the final structure will be important.
Transurban has announced an FY26 distribution of 69 cents per security, up 6% from 65 cents in FY25. Market expectations are for a further increase toward 72–73 cents in FY27, implying an income yield of around 5% at current prices. The distribution is generally unfranked, although the income stream is relatively defensive and should grow over time. Importantly, distributions are increasingly supported by underlying free cash flow, with coverage expected to move toward full funding as the West Gate Tunnel matures.
We’ve owned TCL in the past within the Income Strategy, but not since 2023, where we sold it around the price it’s trading at today. Since then, it’s broadly traded within a range between $12 & $15.50, and we think much of the quality appears reflected in the valuation. Therefore, we think returns will be fairly muted if bought at current prices, and we could only get interested below $13. That seems like a long shot at the moment, but never say never in this market.
Within the listed infrastructure and income space, we currently own and prefer APA Group (APA), yielding around 6%, and Dalrymple Bay Infrastructure (DBI), yielding approximately 5%.
- MM is positive on Transurban as a long-term income investment, but we would prefer to accumulate during periods of weakness.
MM remains neutral on TCL ~$14.60
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