Transurban Group (ASX: TCL), the toll road giant, is having a solid day on the ASX today. The Transurban share price is up 1.17% to $12.94 a share, giving it a tentative market capitalisation of $35.44 billion.
A possible catalyst for this positive share price performance today is a new report discussing the future of the mammoth Sydney toll road network WestConnex.
WestConnex consists of a network of new toll roads, some of which have been completed, and some of which are still under construction. As it stands today, Transurban already owns a 51% stake in WestConnex, which it bought from the New South Wales government back in 2018.
But according to reporting in the Australian Financial Review (AFR) today, the NSW government is putting the remaining 49% stake up for sale. And Transurban is in the box seat.
According to the report, the NSW government is splitting the remaining 49% stake into 2 tranches of 24.5% apiece. The report tells us that Macquarie Group Ltd (ASX: MQG) is valuing these tranches at between $5.4 billion and $6.3 billion each. That valuation is based on the value of the sale of the initial 2018 stake. Also included is an estimated rate of return these assets can offer, as well as bond prices.
Transurban's grip tightens
Macquarie also reckons that "the most probable scenario" for the sale would see Transurban "and its partners" acquire both remaining stakes, leaving them in full control of WestConnex.
That's partly because Transurban reportedly has a "right of first offer" over the assets. However, it will also be asked to submit an offer at the same time as other potential buyers.
Macquarie apparently estimates that if Transurban and its partners don't end up with the full stake at the end of the process, the company would benefit regardless. That's because it would give the market an accurate and updated valuation for the 51% stake that Transurban already holds.
If the deal does go Transurban's way, it would cement the iron grip the company has on the roadways of Sydney. Transurban has a virtual monopoly on Sydney's tolled roads.
It owns 9 out of the 10 user-pays arteries (not including the 3 WestConnex roads already completed). This includes the recently-completed NorthConnex route. The only tolled road in Sydney outside the company's ownership is, of course, the iconic Sydney Harbour Bridge.
The company also benefits from the often-generous tolling regulations that it's allowed to charge motorists. Many of its roads have contracts where Transurban is allowed to hike tolls every quarter by 4% or at the level of inflation, whichever is greater.
