Is the Transurban Group (ASX: TCL) share price a buy?
Transurban Group reported its half year result yesterday showing a 56.1% decline in profit after tax including significant items.
Other than significant items, there was a $163 million increase of depreciation and amortisation and a $32 million increase in net finance costs.
What were some of those significant items? The stamp duty, transaction & integration costs on the WestConnex acquisition and the transaction & integration costs on the A25 and M5 acquisitions were largely the causes, although this was partly offset by the M5 gain on consolidation.
However, the underlying operating results were quite solid. Proportional toll revenue increased by 9.3% to $1,286 million and proportional earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 9.8% to $1 billion. The revenue growth was driven by a 2.7% increase in average daily traffic and the rest by toll increases.
Transurban is responsible for delivering nine projects over the next five years, which should add progressive cashflow for the business. Those projects are: New M4 tunnels, the Logan Enhancement Project, 395 Express Lanes, NorthConnex, New M5 and M5 East, the Westgage Tunnel, the Fredericksburg Extension, the M4-M5 Link and the 495 Express Lanes Northern Extension.
Transurban also pointed to further development opportunities in Melbourne, Sydney, Brisbane, the Greater Washington Area and Montreal.
Foolish takeaway
With free cash flow of $715 million from the result, Transurban continues to be a cash-generating machine for investors. Transurban has forecast the FY19 distribution will be 59 cents per share, an increase of 5.4% compared to FY18.
Transurban is a quality business, but I am hesitant to buy shares with interest rates still projected to rise further in the US, which could further devalue the attractiveness of Transurban's shares as a yield play, although it does offer a nice yield of 4.8% for FY19.
