Toll road operator Transurban (ASX: TCL) has posted a 13.6% increase in proportional toll revenue to $275 million for the September quarter, marking it the strongest quarterly revenue growth for the group since the December 2010 quarter.
Transurban, which owns 100% of the CityLink, Hills M2 and Lane Cove Tunnel networks as well as between 50% and 75% of the M1 Eastern Distributor, Westlink M7, M5 South West Motorway and Pocahontas 895 recorded toll revenue growth on all road networks with the exception of the M5 where revenues fell 3.4%.
Highlights during the quarter included the completion of the M2 upgrade which noticeably reduced congestion through peak periods and further progress on widening the M5 which the company reported remained on time and on budget.
While the quarterly results shed light on traffic volumes and toll revenues, Transurban does not release earnings figures on a quarterly basis. For the financial year (FY) ending June 2013 the toll operator reported a 2.3% increase in underlying free cash to $443.3 million on the back of a 5% increase in proportional toll revenue. Based on the latest quarterly traffic figures, investors will no doubt be expecting solid growth in free cash for FY 2014.
Monopoly assets can certainly create shareholder value if the assets are managed properly. As has been seen recently, excessive debt loads have brought a number of regulated businesses unstuck however outperformance and value creation is certainly possible for the best managed firms.
As the chart below shows, in the past five years the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has increased by nearly 30%. Meanwhile Transurban's share price is up 42%, the owner and manager of Sydney Airport (ASX: SYD) has seen its share price rise nearly 35% and Macquarie Atlas Roads (ASX: MQA) which owns assets in both Europe and the USA has massively outperformed the index with a return of 165%
Source: Google Finance
The consistent revenues and predictable earnings which are a hallmark of regulated assets and utilities such as toll roads and airports make these businesses highly appealing to investors.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.