Here’s why Transurban shares are this fund manager’s top holding

Transurban has rallied on the ASX this year with its share price rising 4% over the first half of 2022.

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Key points

  • The Transurban share price rose on Friday by just under 1% to finish the session at $14.50
  • The ASX share is up 4% in 2022 but had a rough month in June 
  • Transurban is the top holding in the portfolio of asset management company Cameron Harrison 

The Transurban Group (ASX: TCL) share price rose on Friday by 0.83% to finish the session at $14.50.

Transurban has rallied on the ASX this year with its share price rising 4% over the first half of 2022.

But investors endured a tumultuous month in June.

Transurban shares dropped from a closing price of $14.70 on 3 June to a trough of $13.63 on 16 June. Then they rose again to finish the month flat — up 0.07%.

What do the experts think of the Transurban share price?

As my fellow Fool James reported today, Morgans has an add rating on Transurban. The broker’s 12-month share price target is $14.42.

A number of other brokers have weighed in on Transurban’s short-term future. Some are positive, some are negative.

The asset management company Cameron Harrison sits on the positive side. Transurban is currently the top holding in the company’s portfolio.

Why Transurban is our No. 1 stock pick

Partner David Clark is responsible for investment management at Cameron Harrison.

In an interview with the Australian Financial Review (AFR), Clark says Transurban is benefitting from rising inflation.

Clark said:

The toll road operator is a short-term beneficiary of the current inflation cycles and economic reopening.

Transurban’s toll road concessions have very strong inbuilt inflation protection, with two-thirds of revenue linked to the inflation rate and a further quarter fixed at 4.25 per cent (until 2029).

The concession tenures have an average life of 30 years and toll rates cannot be reduced in the event of deflation.

This means the current spike in inflation (and subsequent fall to reasonable levels) will lead to structurally higher revenues throughout the term of the concession.

Transurban has pricing power

Clark says Transurban’s pricing power is an advantage in today’s economy.

He explained:

When we assess the current inflationary environment, we are looking for companies that can exert pricing power in their markets, which can be used to mitigate rising input costs.

Pricing power presents itself in a variety of ways.

For instance, companies with a dominant market position can leverage that into market pricing power (Bunnings/Wesfarmers Ltd (ASX:WES)), revenues that are predominately associated with essential spending (healthcare or staples/supermarkets), cash flows with inbuilt inflation escalation (toll road operators, such as Transurban) and/or are at the beginning of the supply chain (industrial commodities producers OZ Minerals Limited (ASX: OZL) and BHP Group Ltd (ASX: BHP)).

Motley Fool contributor Bronwyn Allen has positions in BHP Billiton Limited. 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 positions in and has recommended Wesfarmers Limited. 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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