MENU

Is it time to buy Transurban group?

Transurban Group (ASX: TCL) has been a consistent recent performer for investors and is a member of the S&P/ASX 50 (ASX: XFL). The toll road operator and owner has interests in Australia and North America.

The group currently has six roads in its Australian portfolio, including 100% ownership of CityLink in Melbourne and Sydney’s Lane Cove tunnel and Hills M2 motorway. Other interests include the Eastern Distributor, Westlink M7 and M5 Southwest roads in Sydney.

North American operations began in 2006 — with underwhelming results. In June this year, the company announced the decision to offload its first toll road there. The Pocahontas 895’s results disappointed and ownership will be transferred to lenders. The group sought to reassure investors the problems were specific to that operation alone.

All eyes are on the performance of its only other operating toll road Stateside — the 495 Express Lanes. Opened in November 2012, the Lanes are Transurban’s newest operating asset and described as the most technologically advanced toll roads in the world. Fortunately, results so far have shown promise, with revenue up 49% from the November opening against the first quarter of 2013. It’s early days though, and performance needs to remain positive if the group is to turn a corner in its operations abroad.

In Australia, the company is currently involved in two large development projects. Much emphasis has been placed on the Hills M2 upgrade, with new tolls introduced from July 1, 2013. The group is already seeing traffic growth, thanks to previous road redevelopment.

In fact, five out of six Australian operations saw toll revenue growth in the most recent recorded period. The only underperformer, the M5 Southwest, is undergoing a two-year development project to increase lanes, which will provide better access to Sydney Airport (ASX: SYD).

At today’s price the group offers an attractive dividend yield of approximately 4.6%. Project improvements, technological developments and cost disciplines may generate greater free cash flows going forward, supporting distribution payments and growth. Fellow toll road operator Macquarie Atlas Roads Group (ASX: MQA) has enjoyed equally impressive recent growth.

Foolish takeaway

Traffic, congestion and frustration are easy bedfellows, ownership of a company benefitting from all this may provide astute investors some relief. Traffic on our roads has only ever increased and this business should offer some steady capital growth and reliable income. 

Looking for a few more solid investment ideas? The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.