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Here’s why Transurban Group is a rock-solid investment for turbulent times

What: Leading toll road operator Transurban Group (ASX: TCL) has announced that on 29 December it expects to begin tolling on its 77.5% owned toll way, the 95 Express Lanes, in Northern Virginia, USA.

So What: A new revenue stream for the group is good news for shareholders. While Transurban already owns a spread of assets across Australia – including Melbourne’s CityLink, numerous roads in Sydney including the Lane Cove Tunnel, Cross City Tunnel, Hills M2 Motorway and the Eastern Distributor and Brisbane’s CLEM7 (amongst others) – this is just its second overseas assets. The 95 adds to the group’s 94% shareholding in the 495 Express Lanes, which is also located in the state of Virginia, USA.

Investment bank Merill Lynch appears to be positive on Transurban’s outlook with The Australian Financial Review reporting that the broker rates the stock as a “buy” with a price target of $9.15. That compares favourably with the current share price of $8.69.

What now: There are relatively few infrastructure asset plays available to ASX investors. Amongst the other options are Macquarie Atlas Roads Limited (ASX: MQA), which also owns toll roads in the USA and Sydney Airport Limited (ASX: SYD), which is a single asset business. In all cases one of the most difficult elements for investors is understanding the financing arrangements of these highly leveraged assets.

With investors deserting many stocks, particularly those exposed to oil and gas, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is struggling to hold its ground. This is one of the benefits of owning a regulated infrastructure asset such as Transurban – there is a steady and reliable cash flow backed by hard, monopolistic assets.

Based on analyst consensus data provided by Morningstar, earnings per share for the group are expected to rise from 24.6 cents per share (cps) in FY 2015 to 52.3 cps in FY 2017. These gains are expected to support a rise in the dividend from a forecast 39 cps in FY 2015 to 48 cps in FY 2017.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

 

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