Australia’s biggest toll road operator, Transurban, is raking in the cash again, with traffic, revenues and earnings all up significantly in 2013-14. More growth is also on the way as the giant integrates Queensland Motorways, which it bought for $7 billion in April, and looks to build new roads.
Transurban chief executive Scott Charlton this morning unveiled what he called a “no-surprises” profit result and confirmed a full-year distribution of 35c per share, up 12% on the year before, and the outlook is for the same growth again in 2015, to 39c. This year Australian traffic rose 6% year on year, overall road revenues rose 13% to an even billion dollars, and earnings before interest tax depreciation and amortisation rose likewise to $934 million. Free cash flow jumped 29% to a massive $572 million. Transurban has delivered more than 10% since 2008-09.
Profit margins on the Australian toll roads are obscene — ranging from 66% to 95%. It’s a truism that the only way to stop yourself getting ripped off by banks is to buy some bank shares, and perhaps the same must now be said about Transurban, given it is almost impossible for most drivers to avoid the company’s road network. It is now the undisputed king of Australia’s private tollways, with almost 1200 so-called “lane kilometres”, up from 737 kilometres last year.
Transurban operates Melbourne’s massive CityLink, six of the nine roads in Sydney’s orbital network (the M2, M5, M7, Lane Cove Tunnel, Cross-city Tunnel and eastern distributor), four Brisbane roads, including the Gateway and Logan Motorways and CLEM7, as well as highways in the United States, where ownership has been restructured.
Transurban is well placed to benefit from increased road-building and privatisation, encouraged by the recent federal and state government budgets. The affable Charlton was predictably supportive of new investment in road infrastructure in Melbourne, Sydney, Brisbane and Perth, saying there were “missing links in all of those cities”. But, he says, there needs to be co-ordination between the states “so you don’t end up with a boom bust cycle” and the market could handle the work efficiently. “It needs to be sequentially planned, we believe.” Charlton also called for new road building to be done concurrently with provision of public transport and rail freight infrastructure, saying “it can’t just all be about roads”.
Transurban is already widening the CityLink between Melbourne and Tullamarine airport, which will increase traffic capacity by 30% (there are no figures yet on the expected revenue increase), and will start building Sydney’s NorthConnex, linking the F3 and M2, when the environmental impact statement process is completed later this year. The company is positioning itself as the private road infrastructure “partner of choice” and is weighing development opportunities, including stage two of Sydney’s WestConnex and Brisbane’s AirportlinkM7.
It’s a different story for Melbourne’s controversial East-West Link: Transurban has already ruled out participating, given the Victorian government is pursuing an “availability model” in which the taxpayer takes the traffic risk. The availability model was meant to attract private investment after the failure of roads like Brisbane’s Airport Link and Sydney’s Cross-City Tunnel — bought by Transurban this year for under half a billion dollars — but Charlton today confirmed Transurban was still not interested because “we like traffic risk”. The stance had nothing to do with the engineering risk on the project, he said, when asked about Leighton’s announcement last week it would not tender for construction work.
The results did not reflect a contribution from Queensland Motorways. While Charlton said full integration would take a couple of years, so far there were “no hidden issues … It was obviously a well-run company with quality staff.”
Transurban shares were unchanged at midday at $7.65, albeit in a down market, but have risen roughly 15% since the start of the year and almost doubled since the post-GFC lows around $4. They’re on a roll.
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