Three reasons for liking Transurban

Transurban roads

Three reasons for liking Transurban

Since starting life in 1996 as the operator of Melbourne’s CityLink, Transurban (ASX:TCL) has come a long way. Taking advantage of falling interest rates, TCL has expanded its portfolio and now operates lucrative urban toll roads in Sydney, Melbourne, Brisbane, Canada and the U.S. The company is a strong dividend payer and continues to be a rewarding long-term investment.

Since listing, Transurban’s share price has outperformed the S&P/ASX 300 Accumulation Index. While the stock price fell with the rest of the market at the beginning of 2020 due to the impact of COVID-19 lockdowns, Transurban has since benefited from the subsequent return to normality.

Operating cashflows and shareholder distributions have also benefited from the rebound in traffic growth and the purchase of Sydney’s WestConnnex. As domestic and international inflation reached multi-decade highs, the insertion of clauses in renewed government contracts enforcing quarterly and annual inflation-linked toll rises has provided another welcome tailwind to revenue growth. 

Transurban has a considerable interest expense servicing its large debt pile which finances those high-quality infrastructure toll roads. While this is commonly known in markets, the interaction of these factors in the current environment produces an evolving situation of significant interest. In the past few years, Transurban’s management took advantage of low interest rates and extended its debt maturity profile to lock in lower rates for at least three years.

Fixing a large expense at cyclical lows, while experiencing rebounding traffic growth and toll rates, provides an opportunity for shareholders to receive increasing distributions. We anticipate the increase in free cashflow to flow through to increased distributions, especially should inflation remain somewhat sticky at elevated levels.

While any of these points would individually add value to shareholders, the combined effect of these internal and external factors may provide the opportunity for earnings to grow at a faster rate in the short term should inflation-linked toll increases outpace increases in interest expense.

And despite higher interest rates globally, the recent acquisitions, by global pension funds, of Sydney Airport and telecom mobile towers highlight the continued demand for quality infrastructure assets.

The rare combination of growing organic volumes, a partly fixed short-term cost base and accelerating revenue, makes Transurban an attractive investment opportunity.

The Montgomery Funds own shares in Transurban. This article was prepared 13 February 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Transurban you should seek financial advice.


Sean Sequeira jointly established Australian Eagle Asset Management in 2004. Sean was appointed Australian Eagle’s Chief Investment Officer in 2016. In addition to stock selection and analysis, Sean is responsible for all aspects of the investment process. Sean is head of Australian Eagle’s portfolio risk committee and process integrity committee. He is also one of the three investment team members that make up the portfolio construction committee.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. this coverage is a little shallow.
    How can anyone claim that this is a good dividend stock and proceed to say nothing about what its value is or add to the argument why it will continue to remain a good dividend paying stock.
    Where is the debt to equity values. Debt been significant if interest rates are increasing to counter inflation.
    Sorry but the commentary is too shallow for any investor to take the claims seriously.

    • Hi Leo, These blogs aren’t exhaustive analyst reports, nor are they advice. Thanks for raising ‘Quality’ as an important aspect of analysis – it’s something we have been focused on ever since this blog commenced in 2009.

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