The Transurban Group (ASX: TCL) share price is in focus after the toll road operator announced its HY23 result, as well as news that the CEO will step down.
HY23 report
Transurban reported a number of things in its result for the six months:
- Record traffic volumes, with average daily traffic (ADT) exceeding 2.5 million trips in November 2022
- Toll revenue up 42.6% to $1.66 billion
- Total costs up 16.9% to $487 million
- EBITDA (EBITDA explained) up 53.7% to $1.24 billion
- Free cash up 88% to $863 million, with underlying cash generation of $0.275 per share
- Distribution per share up 76.7% to $0.265
The FY23 distribution per share is expected to be $0.57, which would be 39% growth compared to FY22 and $0.04 per share higher compared to the guidance.
Why is the distribution going to be even better?
Transurban explained there were a number of reasons for the increase of expected distribution. I think this is good news and supports a higher Transurban share price.
There is increased certainty around traffic performance across the group, there’s record traffic in Sydney and Brisbane and a continued improvement in Melbourne traffic.
Transurban also pointed to strength in freight (up 6.4% compared to FY22) and growth in airport passenger travel since July 2022 (up 9% in Sydney and up 5% in Melbourne).
The business also pointed to distributions from non-100% owned assets being higher than expected.
Transurban continues to work on, and complete, projects that will help improve cash flow.
It also noted the agreement to introduce CDPQ as a 50% partner for the A25 asset for C$355 million, creating “a strategic partnership with one of the world’s largest infrastructure investors that has existing transportation assets in their home market of Montreal.”
Final thoughts on the Transurban share price
Transurban pointed out that 68% of its toll revenue is linked to CPI escalations, creating “inbuilt inflation protection.” Timing of escalations can be delayed depending on the asset, meaning that the benefit from recent inflation numbers has yet to be recognised in some markets.
Things seem to be going well for the business on the operational side of things. A bigger distribution is useful for investor returns.
At the current Transurban share price, the forecast yield is 4%. With record traffic, it may be worth considering. However, with high interest rates, there may be other ASX dividend shares that investors may want to pay attention to first.
