The market could soon have a new Boogeyman with one of our best loved income stocks coming under pressure from allegations that it’s profiteering from its customers at a time when our largest financial institutions are being publicly flogged for the same offence.
I am referring to toll-road operator Transurban Group (ASX: TCL), which is denying that it is reaping $150 million in fees it charges motorists who do not pre-buy their tolls or use an electronic tag, as reported in The Age.
Transurban is at risk of suffering a de-rating due to political pressure with the upcoming Victorian elections, but more on that later.
The company had originally defended itself by saying it doesn’t make any profit on the extra circa $150 million it slaps on motorists as that only covers the cost of collecting the tolls.
That holds as much water as the notion that the big banks always put customers before profit.
The problem with Transurban is that it is only allowed to collect fees to cover costs (outside of tolls of course) but The Age also pointed out that 11% of the 267,000 CityLink day passes bought in 2016 were never used and that Transurban failed to refund the money.
Further, it only costs Transurban $10 for an e-tag but it charges the public $55 for the in-vehicle device.
Transurban said it is developing new ways (such as a mobile app) to collect tolls that may potentially remove the need for fees and maybe even e-tags, but that was not in response to the media report.
Management is also fronting a Queensland parliamentary inquiry that was triggered by complaints against toll road operators. These allegations in The Age will not only add fuel to the fire but I think it will also feature heavily in the upcoming Victorian state election as the Andrews Labor government is backing Transurban in the West Gate Tunnel project – a deal which the opposition says gives the listed toll road operator too much of a financial advantage at the expense of motorists.
I won’t be surprised to see Transurban caught in the Victorian election cross-fire, which could hang the company out to shame in much the same way as AMP Limited (ASX: AMP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) have been.
The share prices of infrastructure stocks like Transurban are already under pressure from rising global bond yields (which makes their dividend yield less appealing). Transurban is up 6% over the past year while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has rallied 9%.
But if you are thinking of switching from Transurban to Sydney Airport Holdings Pty Ltd (ASX: SYD) to dodge the looming PR nightmare, that strategy may not work either.
Sydney Airport is facing a Productivity Commission review as it battles accusations of monopolistic pricing practices.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.