The Motley Fool

Why the Transurban Group (ASX:TCL) share price is stuck in a 7-week log jam

Shares in our largest toll road operator Transurban Group (ASX: TCL) won’t be going anywhere fast till early September, but don’t mistake the benign share price for calm.

The competition regulator said today that it needs more time to decide if it will give the greenlight to Transurban to own the WestConnex project that the Sydney state government is looking to flog.

This critical decision was expected today, but the ACCC will now only make its mind up on September 6.

It will be an agonising seven week wait for investors with Transurban at a critical crossroad. The ACCC’s decision on whether to give its blessing on its bid for WestConnex will set the growth direction for the group that goes well beyond the immediate impact of the Sydney toll road asset.

Transurban needs to make a sizable acquisition if it wants it share price to perform in this increasingly hostile environment for infrastructure stocks.

You can blame the spike in global bond yields for casting a long shadow over the sector, which is regarded as a bond-proxy where the price of the securities only does well when yields are falling.

But yields have been rising for some months and will likely keep doing so over the medium term as major economies like the US and Euro zone raise interest rates.

This is the key reason why shares in Transurban have slipped 5% since the start of the year while other infrastructure and utility stocks like Sydney Airport Holdings Pty Ltd (ASX: SYD), Spark Infrastructure Group (ASX: SKI) and Ausnet Services Ltd (ASX: AST) are also lagging behind the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), which has rallied 3% over the same period.

The best way for Transurban to break out of the funk is to make big acquisitions to bolster its earnings growth, and by extension, its dividend payments.

A “no” vote by the ACCC will create a roadblock to the strategy as it will reinforce perception that Transurban is a monopoly that needs to be tamed through regulation.

There’s a lot at stake given recent media reports that Transurban is engaging in predatory pricing of Victorian motorists and a parliamentary inquiry in Queensland into alleged unfair practices.

If Transurban’s ability to expand its portfolio of assets in Australia is curtailed (worse still if the government acts to further regulate fees it can collect), it won’t have other obvious ways to keep shareholders onside as it waits out the rising yield cycle.

It could look overseas for acquisitions but that won’t be as warmly welcomed by the market given corporate Australia’s patchy track record in delivering shareholder value through that avenue.

I’ll be staying away from the Transurban and the sector for the time being.

Fortunately, there are better sectors to be looking at that won’t be impacted by rising yields. The experts at the Motley Fool have uncovered one such sector, which they believe will outperform in FY19 and beyond.

Click on the free link to find out what this sector is and the stocks you should be putting on your watchlist.

7 of 8 People Are Clueless About This Trillion-Dollar Market

One of our investors has recently returned from a research trip to Silicon Valley... and has a warning for fellow investors:

Because he works for an organization dedicated to spreading great investing ideas, his video report is free today... so you can see it and decide for yourself.

Don't miss your chance click here to learn about this warning and how you might be able to profit!

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!