On August 5 the closing price for leading toll road operator Transurban Group (ASX: TCL) was $7.58. The following day the company released its FY2014 full-year results which exceeded consensus forecasts. This resulted in a 9.8% spike to a peak of $8.32 by September 4. Over that same period the S&P/ASX 200 Index (INDEXASX: XJO) rose 2%.
The shares have since retraced the majority of those gains as the general market fell. However, there is now some additional information which may cause the shares to outperform.
A new positive catalyst for Transurban:
Before considering another positive catalyst, let's firstly review the excellent August profit result and the ensuing bullish commentary:
Profit Result:
Transurban saw stronger toll revenues and net profit after tax up 44%. Cash flow generation exceeded expectations.
Commentary after the results:
Investment in growth ensures the capacity for a 10% growth in dividends being maintained for 5 years, according to broker Macquarie Equities. They raised the target price to $8.83.
Better cash flow per security than most yield stocks both locally and globally, declared financial services company UBS.
Last week's positive catalyst:
After the release of the profit results, several analysts were looking forward to last week's Transurban investor day to provide extra clarity on the company's recent acquisitions and road upgrades. The company didn't disappoint by providing important further details including:
Positive comments relating to the recent expansion into Brisbane. This suggests upside risks to FY2015 forecasts for Queensland Motorways. Further commentary highlighted that traffic levels may recover over the short term and management remains confident of the longer-term growth.
Synergies may allow margins to get up towards the NSW portfolio level.
The potential for the U.S. to outperform, because the 95 Express Lanes in the U.S. remains on track for an opening later this year.
In Victoria the CityLink-Tulla-widening financial close and delivery dates were confirmed, as were those dates for NorthConnex in NSW.
Why is Transurban a good investment for decades?
Toll roads benefit both from rising traffic volumes and increased tolls. Additionally, they have high barriers to entry and Transurban has defensive and growing cash flows. These income streams last for decades and provide the resources to make further acquisitions and upgrades, which in turn provides increased cash generation.
