The Transurban Group (ASX: TCL) share price is in focus after the toll road business reported its FY23 result.
FY23 result
Here are some of the highlights for the 12 months to June 2023:
- Record proportional toll revenue up 26.2% to $3.3 billion
- Proportional EBITDA (EBITDA explained) increased by 28.9% to $2.45 billion
- Proportional free cash (including capital releases) grew by 12.7% to $1.7 billion
- Distribution per security rose 41.5% to $0.58
Transurban revealed that it experienced record traffic volumes with average daily traffic (ADT) exceeding 2.4 million trips. The toll business revealed that there was year-on-year growth in all markets, with “resilient large vehicle and weekend travel.”
Sydney ADT increased 24.1%, Melbourne ADT increased 24.4%, Brisbane ADT went up 9.4% and North American ADT grew 6.7%.
Balance sheet commentary
The toll road business has a large amount of debt, so what happens with its balance sheet is important in this higher interest rate environment.
Transurban said that the balance sheet was well managed with 96% of the debt book hedged – where it locks in an interest rate for a period of time. It said it has $4 billion of liquidity, with the group’s weighted average cost of Australian dollar debt broadly stable at 4%. The balance sheet could be particularly important for the Transurban share price as time goes on.
Project progress
Transurban mentioned a number of projects.
The M4-M8 link tunnels opened ahead of schedule on 20 January 2023, with works completed on budget. It said the opening of the tunnels has seen “positive traffic effects” on WestConnex. The Rozelle interchange is currently under construction and being delivered by Transport for NSW, which is expected to provide further benefits.
The West Gate Project tunnel excavation works have been completed with mechanical and electrical fit out in underway. Progress continues on the Footscray Road overpass and the construction and/or enhancement of the 40 bridges that form part of the project.
The M7-M12 integration project reached financial close on 28 February 2023, with construction works having commenced.
It also pointed to the sale of 50% of the A25 to CDPQ on February 2023.
Outlook for the Transurban share price
The business said that its FY24 distribution is expected to be 62 cents per security, which would be 7% growth compared to FY23.
The FY23 record traffic and EBITDA provides a “solid base” for continued growth in FY24. It also said that some further benefits of FY23 inflation “will continue to flow through” FY24 revenue and will compound over time.
The FY24 distribution is likely to include WestConnex cash previously held during construction, which is expected to contribute between $0.03 to $0.04 cents per security.
Transurban shares have largely been flat since the COVID-19 crash. It’s benefiting from inflation, but high interest rates do theoretically hurt the valuation of assets and could lead to more expensive debt for the company.
There are some reasons to like the business, but with inflation coming down and interest rates staying high, it doesn’t seem like the best opportunity today.
