March quarter 2018 traffic data
Average daily traffic (ADT) growth across the portfolio for the quarter was +2.7%. Our previous 2H18 ADT forecast of +5.1% looked too optimistic, with Citylink (+3.2% on pcq) not ramping up as quickly as we'd expected following completion of TCL's City Tulla Widening works, Brisbane continuing to be sluggish (+2.1% on pcq, TCL cites the impact of construction works), and the Express Lanes in Virginia (-3.9% on pcq) negatively impacted by weather.
Sydney (+3.5% on pcq) was the stand-out, with the M2, Lane Cove, and M7 better than we'd anticipated. Traffic was impacted by the timing of Easter holidays (a ~60 bps average negative ADT growth impact overall across the portfolio) and construction-related activities.
We now assume ADT growth across the portfolio for 2H18 of +3.1% on pch. Medium term, we have assumed a longer and slower ramp-up on Citylink following completion of government works on related roads in 2018. We have also trimmed our medium term growth forecast for a number of the Brisbane roads, given benign traffic growth.
The earnings from the Express Lanes remain difficult to forecast, and for conservatism we have moderated our outlook. Offsetting this, there looks to be more toll escalation upside in the A25 than we had previously factored in (albeit 50% of this upside is shared with the Quebec government), and have built this into our modelling.
The net result is minor (~1%) downgrades to FY18-21F EBITDA. After factoring in recent TQ refinancing activity, this translates into a 1-2% downgrade to Free CF per share.
Across FY18-21F, we forecast EBITDA growing at ~10% pa CAGR. Ramp-up from the City Tulla Widening project, start-up of NorthConnex in Sydney (late 2019), completion of the Logan Enhancement Project in Brisbane (2019), ongoing growth on the Express Lanes, and acquisition of the A25 in Canada all contribute to this growth.
However, this is partly offset by higher debt service (start of M5 debt amortisation, payment of deferred interest on a EMTN issue, completion of the NorthConnex and Logan Enhancement Projects in 2019, acquisition of the A25, rising interest rates on new debt) as well as increasing tax payments.
Free CF per share growth of ~7% pa CAGR across FY18-21F also factors in dilution from the capital raising in late 2017.
Our DPS forecast for FY18 is in-line with 56 cps guidance (+8.7%) and we forecast DPS growing across FY19-21F at ~7% pa (excluding capital returns), albeit this is not cashflow covered across FY19-20F.
Our 12-month target price has increased 2 cents per share (Morgans clients can log in to view). We retain our Add recommendation.
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Disclaimer(s): Morgans Corporate Limited was a Co-Lead Manager to the entitlement offer of securities in Transurban Group and received fees in this regard.
Analyst owns shares.
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