What do Transurban’s increased revenue figures tell us about economic activity?
With a 5% lift in proportional toll revenue across the Australian and American portfolio, based mostly on traffic lifts in each jurisdiction, the numbers bode well for the company and are clear positives for both economies.
Demand for toll roads is relatively inelastic so usage tends not to drop sharply during economic downturns. That’s why investors looking for stable returns love them (see my article A new road to yield growth). But a lift in traffic numbers is something to take notice of.
From a share price perspective, Transurban has easily outperformed the general market during the recent downturn and has lifted in recent days on the more positive sentiment surrounding equities, particularly with the looming prospect of another rate cut.
It edged above $6.80 in early trade after the numbers were released this morning, a level that is close to or above the target level for many analysts.
Recently appointed chief executive Scott Charlton – with a background in investment banking, infrastructure and construction – promised to work the assets more efficiently when he took the job last year.
That is best illustrated by the performance in Melbourne – the company’s biggest exposure – where the revenue growth on its biggest asset CityLink jumped 5.6% on a 3.2% lift in traffic numbers.
Completed upgrades on some Sydney assets led to traffic growth as well and with further upgrades on the remaining assets nearing completion, further traffic and revenue growth is expected.
It is a similar story in America where its new 495 express lanes on the Virginia toll road achieved record revenues on a major lift in traffic volumes.
Transurban recently transferred ownership of its troubled US Pocahontas roadway to its lenders, although the asset had been totally written off by that time.
Its next major expansion is to provide Sydney’s missing motorway link between the M2 and the F3 expressway that leads north of the city, a project which should return around 14%, if it receives approval.
The NSW government recently announced the $550 million project had progressed to stage three.