Transurban Group (ASX: TCL) shares are having a bad day. The Transurban share price is down 3.03% at the time of writing to $12.49 a share.
The catalyst for this substantial downward move? The company informed shareholders this morning that the traffic volumes on its tolled roads fell 4.8% in the March quarter (that’s January to March 2020).
If you dig into the numbers, it’s a very bleak outlook indeed for the toll road company. In the week beginning 15 March 2020, the company suffered a 17% decline in average daily traffic. By the week of 22 March, it was up to a 36% drop. By 29 March it was 48%.
Transurban makes its money by collecting tolls from the motorists that use its roads. If there are fewer motorists, there is less revenue and less earnings from which to pay dividends.
So it’s understandable that investors are not too wild about Transurban shares right now.
Are Transurban shares a buy today?
Despite the short-term outlook for Transurban resembling a (forgive me) car crash, I still believe there is a long-term buying opportunity for this company.
This is a company with a monopolistic grip on some of the most important arterial roads in the country – critical infrastructure within the economy. When restrictions on movement and working from home are eventually lifted, I expect that traffic volumes on Transurban roads will slowly return to something resembling normal levels. And there’s still the contracted-in toll rises that Transurban is allowed to impose on its customers every year. Some of these tolls will be allowed to continue to increase by at least 4% per annum as well – far above the current rate of inflation.
All of this translates, in my opinion, into some decent earnings certainty over the next few years (and indeed, decades).
Remember, this is a company that investors were happy to assign a value of over $16 a share in February. And that was when interest rates were at 0.75%. Today, they sit at 0.25% – which makes Transurban’s current trailing yield of 4.85% look very attractive. Yes, this yield will probably drop in 2020. But in 2021, 2022 and beyond? I’m not so bearish.
Although the 2020 income prospects from Transurban are far from clear, I think this company is a solid buy at the current share price for future dividend income. And if Transurban shares approach the levels we saw in March (under $10 a share), I will be extremely interested myself.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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.
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