Toll road operator Transurban Group (ASX: TCL) announced its traffic and revenue results for the December 2015 quarter this morning, reporting an impressive lift on both counts.
During the three months, Toll recognised a 16.2% increase in toll revenue, taking the figure to $433 million. However, proportional toll revenue, which the group believes provides a more accurate representation of its portfolio's performance, rose an even greater 17.9% to $454 million.
Basically, the proportional toll revenue excludes minority interests in Transurban's controlled roads, while it includes the company's interests in non-controlled assets (that is, assets that are controlled by other entities). These inclusions are in proportion with Transurban's minority ownership of those assets.
Pleasingly, this result was driven in large part by a 22.9% increase in revenue on the M7 toll road in Sydney thanks to the increase in the truck toll multiplier during the quarter. Trucks are now being charged 1.89 times the car toll, although that multiplier will reach 3 times the car toll at the beginning of 2017 which should result in even greater revenues.
Proportional toll revenue in Sydney as a whole grew 14.2% to $192 million, while average daily traffic rose 7.8%. That included a 7.2% increase in average daily traffic from trucks while traffic grew 8.1% for cars.
Transurban's assets in the United States continued to perform strongly as well. Proportional toll revenue increased by more than 230% during the quarter to US$28 million, with average daily traffic also rising 137.1%.
This was largely boosted by the inclusion of the 95 Express Lanes, which was only included for a portion of the prior period – had this asset been excluded, proportional toll revenue still would have risen 46.3%.
Overall it was a very pleasing result, especially considering proportional toll revenue increased by more than average daily traffic (ADT) in almost all cities during the first six months of financial year 2016 (as seen in the chart below).
Indeed, as the operator of toll roads, Transurban owns some of the most important infrastructure, relied upon by thousands of commuters each and every day. Thus, the company should benefit as the population grows and more cars get on the road.
Of course, there are risks as well, such as the high level of capital required to undertake acquisitions or fund developments, or the possibility of being denied the opportunity to undertake such acquisitions by the regulators, but overall it looks like a very reasonable investment idea for long-term investors.
