Transurban Group: COVID symptoms continue

About the author:

Nathan Lead
Author name:
By Nathan Lead
Job title:
Senior Analyst
Date posted:
25 October 2021, 8:00 AM
Sectors Covered:
Infrastructure, Utilities

  • The 1Q22 data continued to paint a picture of depressed traffic across major regions, which should come as no surprise to investors.
  • Add retained. We view the value in TCL as coming from its long-dated cashflows and not short-term traffic weakness. 12 month target price set at (login to view).


TCL released its 1Q22 traffic data. While traffic volumes were depressed during the period (particularly in Sydney and Melbourne) we think this was expected by the market given previous TCL disclosures.

The market will likely look through this short term data and form a view on valuation based on the shape of recovery and steady state volumes.

Q1 Data Analysis

Average daily traffic in Sydney (-c.49% on 1Q20 excl. NCX) and Melbourne (-c.46% on 1Q20) continued to be impacted by movement restrictions. We expect traffic in these regions to rebound strongly as restrictions.

As an indicator of the speed of rebound, TCL said Sydney traffic was down -11% on 2019 (including new assets) in the week commencing 10 October (coincides with relaxation of most restrictions for vaccinated residents) vs -31% in the prior week.

We have taken a more conservative stance on the shape of recovery in our Sydney forecasts, and mildly upgraded our Melbourne outlook. 

Relatively more robust traffic in Brisbane (-5% on 1Q20) than in the southern markets was supported by minimal movement restrictions, albeit traffic is still likely impacted by international and interstate border closures. Logan Motorway (+9% on 1Q20) was the stand-out road across TCL’s portfolio. Forecast changes for Brisbane are immaterial.

Large vehicle traffic continues to be resilient in Sydney and Brisbane, albeit declined slightly in Melbourne vs 1Q20 (noting the construction industry was shut down for two weeks at the end of 1Q21). Also worth noting was that airport-related roads continued to suffer the most in a region.

Dynamic tolling on the US Express Lanes continues to recover off their lows in 4Q20, albeit average tolls on the 95 are still c.10% down on 1Q20 (with traffic up 4%) and the 495’s average tolls are down 22% on 1Q20 (with traffic down 33%). We have downgraded our short term forecasts for the Express Lanes.

Forecast and valuation update

FY22F EBITDA downgraded 7% and FY23-24F by 1-2%. FY22F DPS downgraded 12% to 34 cps (1H21 guidance 15 cps) and FY23-34F downgraded 1-4%; the DPS profile is so dependent on the shape of traffic recovery, albeit TCL has indicated it may be willing to support the DPS over coming years with capital releases.

We forecast a 1% decline in EBITDA in FY22 (not helped by a c.$30m increase in corporate costs related to SaaS accounting), then rising by 18% pa CAGR across FY23-26F. This ultimately sees a 7% decline in DPS in FY22F, followed by 24% pa CAGR across FY23-26F. As well as depressed traffic, FY22 will also be impacted by WCX equity issuance.

Traffic recovery, toll escalation, and new asset contributions will be medium term growth drivers, as will low interest rates.

DCF-based valuation decreased to (login to view target price) per share, as a result of our forecast changes. We set our 12 month target price on the basis of this valuation.

Investment view

ADD retained, given c.10% potential 12 month TSR (including 2.5% cash yield).

On a five year investment horizon basis, we estimate TCL is trading on an equity IRR of 7.3% pa, given rapid DPS growth and rising capital value.

Price catalysts

Quarterly CPI releases.


Traffic risk, with heightened uncertainty from short and long-term COVID impacts.

Macro drivers (population and employment, interest rates, inflation, AUDUSD). 

Size of the “meaningful financial contribution” required to complete the West Gate Tunnel Project (we assume an additional $1.1bn above the original project budget plus overhead and foregone revenues from completion delays).

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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