Investors have good opportunities for decent long-term returns in companies and investment funds that develop and own infrastructure assets like roads and tunnels. Construction companies get big, multi-year contracts that keep business flowing. In the case of toll roads, the annual income can provide stable earnings for the company.
Lend Lease Group (ASX: LLC) had two good pieces of news recently. The infrastructure and property developer was awarded the engineering work for designing and constructing the NorthConnex Motorway in Sydney. Its joint venture with a French construction company will build a twin tunnel tolled link with an estimated budget of $2.65 billion.
Next, it was nominated as the preferred tenderer for a Pacific Highway upgrade worth around $580 million. The project is the third package in Pacific Highway upgrade contracts the company is undertaking.
Over the last four years, company underlying net profit has risen, and recently business is being uplifted with growing housing construction demand. Its share price is up about 22% in the last twelve months. The dividend yield is 3.4%.
Toll road developer and manager Transurban Group (ASX: TCL) also announced two business opportunities that investors familiar with the company will appreciate.
First, it has agreed to buy the financially troubled Cross City Tunnel for $475 million. The 2.1km tunnel originally cost $1 billion to construct. This adds to the toll roads portfolio that includes five major roads in Sydney and one in Melbourne.
Second, it has just secured another jewel in its crown by winning the bidding for Queensland Motorways Ltd, the owner of five of the six toll roads in Brisbane. Developing such assets would regularly take many years and billions of dollars, so when the opportunity to acquire all of them as a group came up, the company had to make a successful last bid.
Currently, it owns no assets in Brisbane, so this will expand its national footprint into Queensland. For the $7.05 billion bid, the company plans a capital raising. It will own a 62.5% stake through its consortium. The five Brisbane toll roads' annual earnings are about $300 million.
Transurban may also bid for Brisconnections, the company in receivership which owns the Airport Link toll road in Brisbane.
The company has now amassed enough properties in the last four years to deliver consistent annual profits from tolls and other management fees. During that time underlying net profit went from about $60 million to $171 million in 2013.
Foolish takeaway
Regularly, property takes time to rise in value, but infrastructure companies can accelerate earnings by expanding investment portfolios. This can increase income and management fees, for example, so Transurban's plan to move into Brisbane is an attractive opportunity.
