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Transurban Group plans to expand toll road portfolio into QLD

Toll road developer, operator and owner Transurban Group (ASX: TCL) recently completed the acquisition of Royal Bank of Scotland’s senior secured debt for the Cross City Tunnel in Sydney. The $475 million deal will make the company the sole secured creditor and it plans to work with the receivers of the asset to unlock value for the company’s security holders. The project originally cost about $1 billion to finance and cost.

Transurban owns roads like the Lane Cove Tunnel and Hills M2 in Sydney and the CityLink in Melbourne. It has also invested in roads in the state of Virginia, USA.

With the announcement of the Queensland Investment Corporation (QIC) plan to sell its Queensland Motorways’ network, a successful Transurban bid could add five of the six toll roads in Brisbane to the company’s portfolio.

The Queensland motorways’ network may fetch up to $6 billion if sold through the regular bidding process. Transurban could link up with funds like AustralianSuper, the superannuation fund manager which has $70 billion of funds under management, to form a consortium for acquisition.

In 2013, the company’s NPAT was $174.5 million, up from $58.56 million in 2012 due to about $40 million in extra revenue and a much reduced net equity investment loss compared to the previous year. Security distributions were $0.31 per security, maintaining an annual increase since 2009.

Consensus analyst forecast has earnings per security rising to 43.9 cents per share (cps) in 2015, from 19.6 cps in 2013. Although that would mean an impressive compound annual average growth of 49.6% in earnings per security, Transurban’s price to earnings ratio is 58, so the market has already priced in the expected growth. Security distributions are projected to go from 34 cps to 41.5 cps over the same period.

Foolish takeaway

Investing in infrastructure requires a long-term approach, taking advantage of the compounding over long periods of time, like buying a property yourself. Over the past 10 years, the total shareholder return has been a compound annual 10.9% rate. Its share price has been on a steady climb since August 2011, from about $5 to $6.79.

Investors interested in adding infrastructure stocks for long-term portfolio performance can also consider Macquarie Atlas Roads Limited (ASX: MQA) and Sydney Airport Holdings Ltd (ASX: SYD).

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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