Australian Investment Blog

ASX:TCL 09/05/2018

Transurban (TCL) – Overvalued Yield Stocks

Stock

Transurban (TCL) $12.01 as at 09/05/2018 - expected yield of 4.53% unfranked

Event

Transurban (TCL), the incredibility well run toll road operator had an investor day at the end of April and talked a big game, and rightly so, the underlying performance of this business has been exceptionally strong with quality assets that are growing earnings at a pace greater than inflation, plus they have the ability to ‘manufacture’ future growth through their development pipeline. To be clear, we have no issues with the underlying business in fact, this is one of those ‘Buffet like’ stocks that have great long life assets that are hard to replicate, however rising global interest rates coupled with the likelihood of a growing development pipeline and Transurban, a stock that is priced principally off yield could be hit from two sides. Lower dividend growth than is currently factored in (given requirement to spend on growth) and a macro backdrop of rising interest rates that make the prevailing dividend less attractive. As it stands, Transurban has an ~$11bn development pipeline, with the potential for this to grow significantly, e.g. Wesconnex at around $16.8bn, North East Link at $16.5bn and Maryland in the US around US$9.0bn.

Market Matters Take/Outlook

We are negative Transurban (TCL) at current levels targeting a move down to $10 i.e ~20% lower Transurban (TCL) Chart

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