Distribution Upgrade

2023 INVESTOR DAY

Need To Know

• FY23 distribution upgraded to 58cps (57cps prior guidance)
• Traffic momentum remains strong with Melbourne continuing to recover post-pandemic
• East-link acquisition continues to be key short-term growth opportunity
• We re-iterate our Buy rating

Upgrade to Distribution: Transurban released its investor day update which outlined an upgrade to the FY23 distribution guidance to 58cps (vs consensus and previous guidance at ~57cps) due to continued confidence in traffic momentum and a capital release (representing ~2-3cps). The upgrade largely fills the hole left by the downgrade in August 2022, which explains the relatively muted reaction from the market. 

Little new information was provided on group performance outside of what was announced in the 3Q Traffic update (see previous flash note). Sydney and Brisbane have made a strong recovery post pandemic and Melbourne volumes continue to improve. 

EastLink Acquisition: Lifting the Melbourne exposure remains a key focus for the group. This is signalled by the flagging of the potential acquisition of the EastLink project. The acquisition should be able to be debt funded given the group has called out ~A$2.0bn of available debt above what has been committed to the pipeline. 

Some speculation arose around the necessity for capital management and a potential equity raise in securing the deal. Whilst it still remains dependent on where the deal lands, we take the view that the outlined ~A$2.0bn should largely cover the proposed acquisition. 
Transurban is currently still waiting for clearance from the ACCC before the offer stage can commence. The company flagged that this is expected to occur mid-2023. 

Major long-term growth opportunities? Interestingly TCL did not include its usual growth opportunities pipeline slide. Whilst we won’t make a large deal out if it, this may be a key focus for the FY23 result as major growth projects are starting to thin out for FY27+. 

Investment View

Traffic volumes continue to improve, with most roads either meeting or exceeding pre-Covid levels. Inflation-linked tolls are clearly contributing to strong revenue and margin growth. 

TCL is a well-managed vertically integrated toll-road company, with several large-scale growth options. Rising bond yields have pressured the share price over the last 12 months, although have recently begun to reverse, seeing TCL start to outperform. 

We retain our Buy recommendation for TCL.