TCL share price in focus
Transurban, founded in 1999, manages and develops urban toll road networks in Australia, Canada and the United States.
Transurban has an interest in 22 urban motorways across its portfolio. Some of its notable motorways include the CityLink in Melbourne, Hills M2 in Sydney and the Logan Motorway in Brisbane.
Transurban invests heavily in the development of new projects which are paid back through collecting toll revenue from motor vehicles.
The key metrics
If you’ve ever tried reading a company’s income statement on the annual report, you’ll know just how complex it can get. While there are any number of ways you could slice up the statement, three key figures are revenue, gross margin, and profit.
Revenue is important for obvious reasons – everything else (profit, margins, return on equity etc.) is downstream of a company’s ability to generate sales and revenue. What we’re looking for is not so much the absolute number, but the trend. TCL last reported an annual revenue of $4,119m with a compound annual growth rate (CAGR) over the last 3 years of 12.6% per year.
The next thing we’ll want to consider is the gross margin. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods and services? TCL’s latest reported gross margin was 57.0%.
Finally, we get to profit, the real headline number. Last financial year Transurban Group reported a profit of $326m. That compares to 3 years ago when they made a profit of $3,303m, representing a CAGR of -53.8%.
Financial health of TCL shares
Next, we could consider the capital health of the company. What we’re trying to work out is whether the company is generating a reasonable return on their equity (the total shareholder value) and whether they have a good safety buffer. One important measure to consider is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of TCL, the current net debt sits at $18,018m. A high number here means that a company has a lot of debt which potentially means higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt, which can be seen as good (a big safety buffer) or bad (inefficient capital allocation).
A metric that might be more valuable to us is the debt/equity percentage. This tells us how much debt the company has relative to shareholder ownership. In other words, how leveraged is the company? Transurban Group has a debt/equity ratio of 175.1%, which means they have more debt than equity. This isn’t always a bad thing if the company has stable revenue and good cash flow, but it certainly creates more risk.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is allocating capital efficiently and generating value, while a low number suggests that company growth may be starting to slow. TCL generated an ROE of 3.0% in FY24.
What to make of TCL shares?
One way to have a ‘speedy read’ of where the TCL share price is could be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Transurban Group shares have a dividend yield of around 4.57%, compared to its 5-year average of 3.64%. Put simply, TCL shares are trading above their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends are growing, or it could mean the share price is falling, or both. In the case of TCL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the TCL share price.
