The road operator’s longstanding chief executive Scott Charlton,who announced he will leave the company towards the end of the year,confirmed Transurban’s interest in scooping up any portion of Eastlink – a 39 kilometre motorway running through key suburbs in Melbourne’s east and south owned by a consortium of funds under the ConnectEast banner,some of which are considering divesting.
Transurban reported record results thanks to toll road costs accelerating with rising inflation.Louie Douvis
“Some of the shareholders are potentially looking to exit and are talking to advisors,” Charlton said. “We’re just registering our interest and we will have to see how the whole process plays out.”
Transurban operates nearly all of Australia’s 21 toll roads – except for the Sydney Harbour Bridge and Tunnel and EastLink – so it may face opposition from the country’s competition watchdog about its expansion plans as well as the difficulty of overcoming an existing shareholders’ agreement in EastLink that prevents toll road operators from buying in to the road.
Transurban,which owns Melbourne’s CityLink and Sydney’s WestConnex,reported a record December half-year as bumper traffic and CPI-linked toll increases lifted proportional toll revenue to $1.66 billion,while total revenue topped $2 billion. Earnings before interest,tax depreciation and amortisation (EBITDA) topped the billion dollar mark at $1.07 billion and net profit for the half came in at $55 million.
The toll road behemoth owns a number of expressways in North America and is building the Westgate tunnel in Melbourne and the Rozelle interchange and M7-M12 widening and integration in Sydney.
A big lift in freight volumes and record traffic in Sydney and Brisbane as well as more frequent car journeys on the weekends contributed to its strong result.
Average workday traffic in Sydney increased by 40.3 per cent and weekend/public holiday traffic rose 77.9 per cent. Melbourne’s workday traffic was up 38.5 per cent and weekends 71.8 per cent.
“Our roads have benefitted from freight volumes which achieved an all-time high,” Charlton said. “We have seen record traffic in Brisbane,as well as in Sydney even when excluding NorthConnex and M8/M5 East. This performance was underpinned by the urban nature of our roads,demonstrating that the diversity of everyday journeys across commuting,travel and leisure trips provides resilience throughout economic cycles.”
He highlighted the strength of the group’s business model and its ability to return capital to investors at a time when inflation is rising and interest rates are high.
“Around 68 per cent of Transurban’s toll revenue is linked to CPI escalations,creating inbuilt inflation protection. Timing of escalations can be delayed depending on the asset,meaning that the flow through from recent higher inflation numbers has yet to be recognised across some of our markets,” he said.
Transurban raised forecasts for distributions to its investors based on the positive outlook and said Charlton will depart at the end of the calendar year after 11 years at the $43 billion company.
“Under his leadership,the company has grown to become an ASX 20 listed entity,increasing its market capitalisation by more than five times to over $43 billion and has delivered total security holder returns of 289 per cent,” said Transurban chairman Craig Drummond.
The group announced it has sold down a half stake in its A25 expressway in Montreal Canada for $382 million.
RBC Capital Markets analysts said Transurban’s distribution upgrade “will likely be well received.” They said the company had beat consensus expectations in Sydney and North America,with small misses in Melbourne and Brisbane.
Transurban said its 2023 financial year distribution is expected to be 57¢ per security,a hike of 39 per cent on the previous year and a 4¢ gain on its previous guidance. A distribution totalling 26.5¢ will be paid on 13 February for the six months ending December 2022.
Shares in the company were stable at $14 during lunchtime trade.
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