Transurban Group (ASX: TCL) is an Australian toll-road operator with interests in 14 toll roads spread throughout Brisbane, Sydney, Melbourne, and Virginia in the USA.
A busy 2014 saw solid earnings growth for the Group, with toll revenue rising 13.1% and net profit after tax up 44%.
Mainly the results came from strong performance in existing roads, particularly the Hills M2 and 495 Express Lanes (US) which saw toll revenue growth of 34.7% and 234.6% on the back of traffic increases of 13.8% and 32% respectively.
During the year Transurban also orchestrated the acquisition of six new motorways; five in Brisbane and one in Sydney. The Sydney purchase was completed on 26 June and the Brisbane assets were acquired on the 2 July 2014, making these assets earnings accretive from FY 2015 onwards.
The number of Transurban shares on issue rose by 27% to 1,896 million after the company raised capital to complete its planned acquisitions.
Over a longer-term timeframe this will prove to be a boon to shareholders, as the growth from the new assets should outstrip the dilution of earnings within a couple of years.
I expect 2015 to deliver another strong increase in earnings to Transurban shareholders as its ongoing value-driving activities bear fruit.
Although I admit to a personal dislike for toll roads, two companies in particular have convinced me that they make a sound investment vehicle for reliable earnings. The first one is Transurban, and the second is its international counterpart, Macquarie Atlas Roads Limited (ASX: MQA).
This latter company, with stakes in a total of six assets across the US, Germany, France, and Britain, has seen solid price growth in the past year.
Although smaller and with slimmer prospects for immediate growth than Transurban, Macquarie Atlas is buoyed by very generous tolling rights, and 100% foreign currency exposure which may interest investors with an eye for weakness in the AUD.
The best part of toll roads is their mostly predictable income streams, thanks to their ability to carry traffic (faster and more efficiently than suburban roads) drawing customers. In a busy and prosperous modern society, the savings of 20 minutes or more by taking a toll road will often outweigh the costs.
Costs are often billed monthly as well making toll roads even more of an instant gratification vs delayed pain experience. As every amateur psychologist knows, instant gratification is a big drawcard, and it's this factor in particular combined with growing traffic numbers that make toll roads truly long-term businesses.
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