Transurban

Transurban’s underlying revenue growth for the June quarter was better than expected, increasing 7.1% to $257m for the quarter and 5% to $991m for the full year. Revenue from the company’s crown jewel, Melbourne’s Citylink, which produces around 60% of the company’s total revenue, increased 5.6% due to a 3.2% increase in traffic and the regular CPI-linked toll increase.

Transurban’s Sydney assets (the M2, M7 and Lane Cove Tunnel) also performed well following the completion of various construction projects, particularly the upgrades in the northern districts west of Pennant Hills Road. Revenue increased more than 6% across the board, with the Eastern Distributor increasing revenue over 10%.

The company’s troublesome US express lanes produced a complete turnaround this quarter following a lacklustre start since opening in November 2012. Daily revenue increased 65% as a free weekend of travel helped users get comfortable with dynamic toll prices that change with the level of congestion.

Transurban’s share price has increased 73% since reaching $3.92 in March 2009, and 10% since 30 Nov 12 (Hold – $6.18). Despite increased traffic, regular toll increases and a current yield of 4.4%, we don’t expect Transurban to produce a total return much beyond 8%. But as that’s inflation protected and well above term deposit rates, we’re sticking with HOLD.