Comparative review

Transurban is a stock that we’d love to own at the right price, as it owns some of Australia’s most profitable toll roads such as Melbourne’s CityLink (one of the most profitable toll roads in the world) and several in Sydney that are virtually impossible to avoid. Transurban’s monopolistic infrastructure allows it to easily increase prices as motorists opt for the quickest route to reduce commute times.

In Transurban’s trip down memory lane from 26 Jul 10 (Avoid – $4.49), we underestimated the stark rebound in Australian traffic growth following the GFC and the impact of low interest rates on infrastructure values. The company is also expanding its road network in Australia, which is a sensible way to grow given the current high valuations for highly prized infrastructure assets. The distribution yield is 4.8% and should grow steadily over time, but for now we’re prepared to wait for a larger margin of safety. HOLD.

Macquarie Atlas Roads also owns several toll roads overseas, but its biggest problem is debt. In 2012 Macquarie Atlas produced a measly $41m of operating cashflow, which included $103m of interest payments on $2.2bn of debt. The company faces some tough decisions in order to put the company on a firmer financial footing. AVOID.