In their final match of the group stage for The Motley Fool's ASX World Cup, we have infrastructure heavyweights Telstra Corporation Ltd (ASX: TLS) versus Transurban Group (ASX: TCL). Both companies have already qualified for the knockout stages with two easy wins over fellow infrastructure group rivals Sydney Airport Holdings Ltd (ASX: SYD) and Aurizon Holdings Limited (ASX: AZJ).
Here's how they line up
| Measure | Telstra Corporation Ltd (ASX: TLS) | Transurban Group (ASX: TCL) |
| Market Cap | $64 billion | $14.4 billion |
| Return on Equity | 30.2% | 5.1% |
| Price to Book | 5.13 | 3.35 |
| Dividend Yield | 5.5% | 4.6% |
| Forecast Price Earnings Ratio | 16 | 39 |
| PEG ratio | 3.11 | 0.97 |
Data Sourced from Morningstar
As can be seen from the table above both companies trade on seemingly high valuations which tells us they've got huge support from the local market. With generous dividend yields and largely defensive structures, it appears this game will go down to the wire.
Telstra
With a majority share of the fixed internet, mobiles and pay-tv markets, Telstra finds itself in an enviable position where its businesses can generate huge EBITDA margins. For example the mobiles, Data & IP, Fixed Voice and Fixed Data businesses boast EBITDA margins ranging from 39% up to 65%. Upon the recent sale of its Hong Kong mobiles business CSL, the telco behemoth is forecast to grow free cash flow to approximately $7 billion this year.
Thanks to its huge margins and positive cash flows, David Thodey, Telstra's cashed up CEO, has been able to have first pick at player selections and is busy developing his team into a more agile force. With the Media and Fixed Voice businesses warming the bench, it has cleared the field for the young but impressive Asian strategy which is complemented by the established Mobiles and data services businesses in midfield.
This, together with a higher dividend than Transurban, has helped Telstra to a 1 – 0 lead at the break.
Transurban Group
If there's a finer defensive strategy than owning toll roads, I'm yet to see it. Transurban, the owner of vast motorways in Australia as well as the U.S. state of Virginia, is a first-class outfit. Recently seven directors took part in the renounceable entitlement offer to raise capital for the (approximately) $7.05 billion purchase of Queensland motorways. While they were at it, the board confirmed a 35 cent distribution in FY14, and hinted at a 39 cent payout in FY15, giving it a healthy 4.6% dividend yield with partial franking.
With the exceptions of a major economic downturn, adoption of flying cars, a social revolt on toll prices or a reliable and fast public transport service (probably the most unlikely of them all), Transurban boasts a business model which most investors will perceive as reliable and timeless. Road widening, increases in toll prices and an expansion of the motorways' portfolio in both the US and Australia present as viable growth strategies.
With a better valuation than its rival across a number of prominent measures, Transurban Group Chairman, Lindsay Maxsted, is able to get one shot passed the supposedly bulletproof Telstra goalkeeper to equalise the scores late in the second term.
Final Score 1 – 1
With two wins and one draw for each, Telstra and Transurban head into the final knockout stages of The Motley Fool's ASX World Cup without a loss.
