Is the Transurban (ASX:TCL) share price a buy after the WestConnex acquisition?

Is the Transurban share price good value?

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The Transurban Group (ASX: TCL) share price has started the week in a positive fashion.

In afternoon trade, the toll road operator’s shares are up 0.5% to $14.12.

Where next for the Transurban share price?

Unfortunately, one leading broker appears to believe the Transurban share price is fully valued at the current level.

According to a note out of Citi this morning, the broker has retained its neutral rating and trimmed its price target on the company’s shares to $13.78.

Based on the current Transurban share price, this implies potential downside of approximately 2.5% over the next 12 months.

And while Citi is forecasting attractive dividend yields of 3% in FY 2022 and 4.4% in FY 2023, it isn’t enough for a more positive rating.

What did the broker say?

Citi has been looking over the company’s acquisition of the remaining WestConnex stake from the NSW Government. While it sees positives from the deal, it suspects it could be dilutive in the near term.

As a result, no changes are made to its rating on the Transurban share price at this point.

Citi commented: “As we come out of a period of restriction, we update our estimates to reflect TCL’s announced of the acquisition of the remaining 49% stake in WestConnex by Sydney Transport Partners (STP), in which TCL holds a 50% stake.”

“The agreed price was $11.1bn and TCL funded its share of commitments ($5.56bn) via a $4.22bn equity raising (at an average price of $13 per share), and the balance by cash. Additionally, TCL introduced 1H22 DPS guidance at 15cps. We believe the transaction is positive but see some near-term dilution to FCF/dividend forecasts. We remain Neutral rated,” the broker added.

All in all, the broker appears to believe investors would be better off looking elsewhere until a better entry point emerges.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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