For readers who haven’t heard of Transurban, it’s a toll road business that builds and operates toll roads in Australia and North America. The weighted average concession life of Transurban’s roads is around 30 years.
It aims to balance growth in distributions over time and investment in new opportunities to increase long-term value.
Transurban released an investor update with comments about the current operating conditions.
West Gate Tunnel project
Transurban told investors about the progress it has made on its West Gate Tunnel project in Melbourne. When completed, the tunnel will be an alternative route to the West Gate Bridge. It will feature around 70km of new traffic lanes and connect to CityLink, another road operated by Transurban.
It’s expected to save up to 20 minutes per trip.
The first tunnel boring machine has excavated around 550m of the outbound tunnel. The second boring machine commenced tunnelling and excavated around 150m of the inbound tunnel.
More than 70% of the widening works on the West Gate Freeway have now been completed. The company also said that more than 600 metres of the new elevated roadway above Footscray Road has been built.
Transurban Traffic update
Transurban is expecting near-term and long-term traffic growth with the ongoing economic recovery after COVID-19 and new asset capacity. The lifting of the remaining government restrictions is expected to help.
Traffic changes can have an influence on the Transurban share price and profitability.
The company’s traffic stats showed that Easter traffic in Sydney and Brisbane was higher than in 2019. Indeed, consistent growth has been seen in these two cities since the beginning of March 2022.
However, in 2022 so far, Melbourne and North American traffic has largely been lower compared to 2019.
Transurban noted that airport-exposed roads were some of the most COVID-impacted, including Transurban roads in Sydney and Brisbane.
However, there are expectations for traffic to recover on airport corridors with the return of domestic and international travel.
Commercial traffic has been resilient, according to Transurban, thanks to e-commerce and construction. Large vehicle traffic has been relatively steady.
Transurban also points to the benefit of the public’s continued preference for private transport over public transport for daily use. The latest NSW public transport data shows public transport volumes down almost 60% compared to July 2019.
The company also said that a permanent and total shift away from the workplace is unlikely.
Fuel prices and inflation
There has been much market talk about the higher fuel prices. Transurban said that fuel price movements have “limited near-term influence on traffic volumes”. The business said that there are other factors that have more influence such as population growth, the employment rate, wage growth, and tourism levels.
However, Transurban acknowledged that over the longer-term, higher fuel prices may have a flow-on effect on the broader economic growth.
The toll road operator said that the average toll spend remains a “small” proportion of typical household expenditure, though it noted the cost of living pressure.
Transurban noted that it has inflation-linked toll escalations, which provide “protection in a rising interest rate environment and would likely result in a net benefit over the near term”.
The Transurban FY22 distribution is expected to be in line with its ‘free cash’, excluding capital releases.