The Transurban Group (ASX: TCL) share price fell 3% to $11.61 as the infrastructure company reported its annual results for 2017 to the market this morning. Here's what you need to know:
- Revenue rose 10.6% to $2,153 million
- Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 16.5% to $1,629 million
- Free cash flow increased 32% to $1,220 million
- 59.6 cents per share in free cash
- 51.5 cents per share in dividends paid
- Outlook for 58 cents per share in dividends in financial year 2018 (FY2018)
- $9 billion in new construction running on time and within budget
So what?
The above results are the 'proportional' results, which takes into account the percentage of each project that Transurban holds. It was another strong year for Transurban, with growing traffic and higher fees passed on leading to bumper toll revenue growth.
There was also further progress made on the company's development pipeline, with potentially up to another $9 billion in new roads to be constructed.
Transurban may have to raise capital again in the future to fund these projects, although debt markets also continue to be well-disposed towards the company. Transurban is very dependent on debt as the below chart shows, with the company holding $13.6 billion in debt.
Management is slowly converting the bank debt into long-life capital markets debt, which may both lower borrowing costs and lead to better relations with lenders. The average time until maturity on Transurban's debt is around 9 years, and the company hasn't had much trouble refinancing in recent times.
Now what?
That could change in the future if interest rates rise sharply. Transurban carries a lot of debt and pays out the majority of its earnings as dividends, which may put the dividend under pressure in the next couple of years if growth slows. If you ever wondered if the dividend was important to Transurban, the very first line of this year's presentation contains a forecast for dividend growth in 2018.
Fortunately the dividend doesn't appear to be under any threat in the near term, as Transurban expects continued growth in traffic numbers and toll revenues in the future. However, owing to the unappealing valuation, I'm not a buyer of Transurban today.
