Transurban as one of the world’s largest toll road operators owns and manage a network of 21 toll roads globally with vehicles making over 2million daily trips. So we take a look to see if Transurban Group is a True Defensive Stock listed on the ASX.

Transurban Shares Price

The share price of ASX:TCL, has been quite stable over the 5 year period, returning investors 21% over that timeframe. You can, of course, see the effects of the COVID19 pandemic on the share price at the start of 2020 and for anyone who managed to buy Transurban Stock at under $11 you’ve made a great decision here.

The share price is currently sitting at $14.29, which is towards the upper segment of the 52-week range is 12.36 – 15.635.

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Transurban Stock Price Chart (5-Year)

Dividend History

Whilst some may scoff at the 21% return over the previous 5 years, it’s worth remembering that Transurban has a stable dividend policy and at the current price pays a dividend yield of ~2.9%. In FY2021 the company paid a distribution of 36.5 cents per stapled share, of which 1.0 cents was fully franked.

Transurban Shares also have a DRP (dividend redistribution plan) for anyone who is interested in this, we know we really like companies with a DRP. If your thinking of getting started with a DRP check out this article and if your looking for information on Transurban Stock DRP look here.

Transurban Group Dividend History
Transurban Dividend History

Transurban (ASX:TCL) has been growing its dividend almost every year since 2009, with the exception of TCL cutting their dividend in FY2020 due to the uncertainty around the COVID19 pandemic. We expect that TCL will continue to raise their dividend into FY21 and FY22. For a dividend investor, this may be an indication of being a defensive stock!

Investor Sentiment

After surveying 84 Investors about their current Transurban shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;

The average target share price over the next 12-months sat at approx $15.53 / share, indicating that investors see some slight upside to the share price over the next 12 months.

As a defensive stock, we would prefer to see share price stability and stability around their dividend policy rather than volatility in the share price.

Fundamentals

The fundamentals for ASX:TCL have been listed below, the company currently does not have a PE ratio due to making a small loss in the FY2019. EPS is also hence negative. The price to book ratio of 5.47 indicating that the market is valuing the stock at significant multiples of their book value.

Market Cap39.13B
Shares Outstanding2.74B
EPS (Earnings per share)(TTM)-0.25
P/E (TTM)171.98
Current Share Price$14.29
Price/Book (mrq)5.47
NTA per share$3.05

The Net Tangible Asset per share for ASX:TCL is $3.05, meaning that for every $14.29 share at current prices that you buy, are backed by $3.05 of actual tangible assets, this could include anything from cash and cash equivalents through to any physical assets such as the toll roads themselves.

Financials

Transurban is set to report their FY2021 Full-year results on Monday, 9 August 2021, so we will be very keen to tune into this presentation to see how metrics are tracking but for the time being, we will look at the current Financials.

Income Statement Overview

From the HY21 market update provided for the Half Year ended 31st December 2020, we can see there have been a few issues with TCL, with revenues down 21.9% to $1.4billion. However, you can see that losses have ballooned out to be increased a massive 729.9% to be a loss of $385million.

Whilst Transurban assures in the report that this is temporary, we will be keen to investigate these numbers further when the group releases their FY21 report in August to see if metrics are improving.

The company attribute these lower figures largely as a result of the COVID pandemic. However, mention in the presentation that Traffic impacts as a result of COVID-19 across all markets, with Melbourne and Greater Washington Area most affected; traffic volumes improved at the Group level throughout the period.

Balance sheet

From the below balance sheet as of 31 December 2020, you can see that Transurban hold a considerable amount of Cash and Cash Equivalents and also a large number of intangible assets. The intangible assets, in this case, would be the actual toll road’s that TCL operates, whilst you can see that TCL is intending to sell some of their road assets under the item “Assets Held for Sale”

The company also, however, has a significant amount of debt and in this regard is quite a complex business. The debt profile of TCL reminds us somewhat of Telstra, with Telstra now selling non-critical assets to reduce debt load. Transurban has $19.5billion of debt, the repayments of this debt equate to nearly $500million a year alone. The large debt load of a portion of the companies market cap does suggest to be cautious towards TCL’s utilisation of debt.

The company operate under a Stapled Trust, where, Transurban books its profits to the trust and its costs to the company. Meaning the companies large profits are effectively taxed at a lower rate.

Transurban Balance Sheet HY21

Insider Ownership and Trading

We can see that Transurban Shares are majority-owned by the General Public and Institutions. This makes up 98% of the shares on issue. Due to the size of the company i.e market cap of $38billion, we would expect those individual insiders would not be able to purchase significant float here.

Private companies and individual insiders make up less than 0.5% of the float.

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Regarding the institutions, you can see in the below table that typically listed infrastructure portfolio’s and Australian listed ETF’s make up a significant portion of the institutional ownership. This is typical of many of the stocks listed in the ASX20.

OwnershipNameSharesCurrent ValueChange %Portfolio %
12.18%UniSuper Management Pty Limited333,423,165A$4.8b0%80.57%
7.07%BlackRock, Inc.193,550,348A$2.8b0%0.04%
6%The Vanguard Group, Inc.164,200,454A$2.3b0%0.03%
1.69%Lazard Asset Management LLC46,147,118A$659.4m56.11%0.34%
1.43%Norges Bank Investment Management39,230,886A$560.6m0%0.04%
1.12%First Sentier Investors (Australia) IM Ltd30,738,228A$439.2m-0.71%0.55%
0.86%Australian Foundation Investment Company Limited23,638,353A$337.8m0%3.51%
Major Shareholders in ASX:TCL

The Westgate Tunnel Project

Transurban is contributing funding towards the construction of the Westgate Tunnell project. The company as of December 2017 had contributed as much as $4 billion towards the $6.7billion project. However, the Project has been plagued with a number of issues relating to latent conditions which have been uncovered during the construction of the project.

On the 29th of January, the builder constructing the Westgate Tunnel Project for Transurban issued a letter of Force Majure, effectively trying to terminate the contract due to significant quantities of PFAS that was located during the excavation of the tunnel. Transurban does not consider the contract terminated and it seems the contractor has re-commenced critical works as outlined in future market updates by TCL. This is however a project which should be monitored by investors for cost escalations on the already massive project.

The Westgate Tunnel is located in Melbourne and has an effective concession once constructed till 2045.

Prophet’s Take and Should I Buy Transurban?

Prophet really likes Transurban as a large dividend-paying machine. They also have a broad range of global toll roads that they operate and have been resilient in paying these dividends even during the fallout of the COVID19 pandemic. We believe TCL is a true defensive stock and is typically seen as a bond proxy by many investors.

Whilst we don’t own Transurban directly, we do indeed hold a portion of ASX:TCL in our portfolio through our exposure in VAS. We believe that by holding VAS we are getting the required exposure to Transurban Stock. We are not currently looking to increase our position in TCL and are happy with participating through our holdings in VAS.

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