Transurban gathering speed in 2014

There are high hopes 2014 will be the year Australian corporate earnings take off. Tollroad operator Transurban is on track to deliver.

Earnings reporting seasons aren’t what they once were.  

Continuous disclosure rules have eliminated the scandals and stunning surprises that once provided months of lurid headlines and had regulators at their wits end.

These days, any divergence from the narrow band of expectations is keenly analysed on an individual stock, sector and market level. But it is guidance and signals for the future that captures the attention of most analysts, which many fear will be scant this year, given the uncertainty about the global economy.

Transurban this morning kicked off proceedings, delivering a solid lift in earnings that was slightly better than expected.

But it was the outlook for the year ahead that had investors breathing sighs of relief with the prospect of a 34c distribution, up from this year’s 31c.

From its near death experience during the global financial crisis, Transurban has delivered 9.1% compound annual growth over the past five years after the restructuring and turnaround by former chief executive Chris Lynch.

Recently appointed replacement Scott Charlton has built on that foundation with a policy of developing and enhancing its existing assets in Sydney, Melbourne and Washington DC rather than heavy expenditure on acquisitions or greenfield developments (see my article A new road to yield growth).

While the stunning 198% lift in net profit to $174.5 million was based largely on the sale of its Pocahontas tollway in the US, the group lifted its performance on every other measure.

Toll revenues rose 4.7%, fees rose 5.8% and earnings before interest, tax, depreciation and amortisation jumped 6.2%. The proportional results, which the group prefers to be benchmarked against, were even more impressive.

Charlton predicted that the forecast lift in the current year’s distribution would be fully cash covered compared with the 97% cover in the just released 2013 result.

That’s the beauty of infrastructure. If properly managed, the earnings can be stunningly predictable.

With the earnings season just getting underway, hopes still are running high that the depreciated currency will boost corporate earnings in the year ahead by as much as 13.6%, and 8.8% if resources are excluded.

That confidence will be put to the test in the weeks ahead.

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