Portfolio Update – Purchase of Transurban Limited (ASX: TCL)

By November 8, 2021Portfolio

 

Across client accounts, we have bought Transurban Group (ASX: TCL). Transurban Group is an owner, operator and developer of urban toll road networks in Australia and North America.

Transurban was listed in 1996 with a single toll road. Today, the company is Australia’s largest privately-owned toll road developer, owner and operator, and one of the largest globally. The business generates 93% of its toll revenues from Melbourne, Sydney, and Brisbane assets, and the remaining 7% from assets in the USA and Canada.
We believe Transurban has several avenues to continue growing earnings:

• Firstly, we see underlying structural trends continuing to drive traffic and congestion levels within each of the company’s markets which we believe will lead to a higher number of customers using Transurban’s roadways.

• We’re also attracted to the nature of Transurban’s long-term contracts which include price escalation mechanisms. These mechanisms provide two key benefits – a guaranteed, underlying level of price growth and built-in protection against increasing inflation.

• Finally, Transurban has a strong development pipeline across not only the coming 5 years but also the 5 years beyond that. This provides the business with the opportunity to develop, own and operate relatively low-risk bolt-on extensions, enhancing the value proposition of their existing assets whilst providing additional revenue opportunities.

We believe Transurban is well suited for inclusion in the Income model due to its high degree of earnings predictability, inflation protection and income potential. Except for the recent period of Covid disruption, Transurban has a strong history of progressive dividend increases. Data shows traffic volume is rebounding to pre-covid levels, and we would expect dividends to also rebound strongly as covid related risks subside.

To fund the addition of Transurban to the portfolio we have decreased the cash holding which was increased post the sale of Sydney Airport.

As always, thank you for your ongoing support; it is very much appreciated. If you have any questions or would like more information, please contact your SBB Wealth Representative.

 

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Prepared by:
EP Financial Services Pty Ltd
ABN 52 130 772 495 AFSL 325 252 (“ELSTON”)
GPO Box 2220
Brisbane Q 4001