The ASX 200 (INDEXASX: XJO) has fallen over 6% at the time of writing.
Investors want to find safety, but cash is offering terrible returns right now. Is the answer to invest in defensive shares like Transurban Group (ASX: TCL)?
Well, hang on. Is Transurban actually defensive?
Day to day, the same people will use one of Transurban's toll roads to get to work or get to school. In normal times it has defensively consistent revenue. Every result Transurban reports slightly higher average daily traffic (ADT). In its half-year result to 31 December 2019 it reported ADT increased by 2.3%.
Transurban is a solid business. We saw that with the proportional underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increase of 9.5% to $1 billion.
But the coronavirus situation is a different type of potential black swan event. In China, in a bid to stop the spread of the infection, cities went into lockdown. Traffic almost completely disappeared in the major Chinese cities. Although traffic is returning after two months of disruption.
In Italy there are now quarantined regions that people can't leave unless there are special circumstances. Sydney is now seeing schools shut because of a few infected students.
We may very well see a sizeable fall in traffic numbers across our Aussie cities if more schools and workplaces temporarily close and more infections are registered. Transurban generates its revenue from the tolls, so it could see a very unfortunate hit to short-term revenue. However, those interest payments will need to keep flowing to the banks.
Even without the coronavirus, I'm not sure Transurban is as defensive as some would like to believe. If most of the country is being more cost conscious because of a downturn, some people aren't going to want to spend money on tolls if they can help it.
Foolish takeaway
There is a lot to like about Transurban's business model, its growth plans and the high demand for its roads in a normal economy. But I don't think that investors should think of it as bulletproof as businesses compared to businesses like InvoCare Limited (ASX: IVC), CSL Limited (ASX: CSL), Rural Funds Group (ASX: RFF) and Ansell Limited (ASX: ANN) in this situation.
