Over the last two weeks a number of high-profile share market analysts have upgraded their recommendations on toll-road operator Transurban Group (ASX: TCL) to a strong long-term buy, have you missed the boat?
About Transurban
Transurban Group manages a portfolio of 12 leased toll-roads in Australia and two in the US. The Australian roads are in prime locations in Melbourne, Sydney and Brisbane and understandably the company has few serious competitors in the heavily built-up cities.
Transurban's management has shown a repeated ability to turn loss-making roads into profit-making roads, or strongly boost the returns from government or competitor-run assets. As a result, analysts consider the company to have strong competitive advantages over peers, or in common terms, Transurban's well-located assets and proven management skill make it difficult for competitors to enter the market and impact the group's profit margins.
What do the analysts think?
The analysts believe that Transurban's monopolistic qualities, along with guaranteed regular toll increases makes for a safe and growing earnings stream.
What do I think? Should you buy Transurban?
The company is forecasting a dividend payout of 39.5 cents this financial year, representing a yield of 4.1%, however this is forecast to grow by over 10% per year over the next three years as management squeezes out more costs and sees the benefits of recently renegotiated finance arrangements.
While the company offers a reasonable yield that is almost guaranteed to grow over the next few years, it doesn't scream value at today's price of around $9.70. Investors buying at today's price should expect to hold the company for many years, noting the relatively low yield, limited growth prospects, and strong share price performance.
I prefer to invest in companies that have a dominant market share, competitive advantages over competitors, and strong growth prospects.
