Why the Transurban Share Price Is Up (ASX: TCL)

At time of writing, the share price of Transurban Group [ASX:TCL] is up 2.29%, trading at $14.76.

Subsequent to its listing in March 1996, the TCL share price went on a massive multi-decade run, which you can see below:

ASX TCL Share Price Chart 1 - Transurban

Source: Trading View

This represents a return of over 1,400% for a company that has a current market cap just shy of $40 billion.

Turns out, despite how much they can irk drivers, toll roads are both popular with governments and profitable for the owners.

Today, we look at potential catalysts for the next move in the TCL share price and its appeal as an ASX dividend stock.

Transurban share price is on a great run but could second wave of virus-hit earnings?

The Transurban share price clawed back all of its losses for the year from the March low.

You can see though that it failed to punch above resistance at $15 dollars and is in the process of a second attempt:

ASX TCL Share Price Chart 2 - Transurban

Source: tradingview.com

Will it be second time lucky for the TCL share price?

A lot, I believe, hinges on whether we see the coronavirus rear its ugly head again in Australia and the US.

You see, Transurban’s earnings rely on the movement of people on the roads it operates.

This is a snapshot of how coronavirus impacted traffic on Transurban’s roads through to the end of April:

Transurban Traffic By Week - ASX TCL

Source: Company Presentation

And as you can see in the numbers below, their North American division is the hardest hit of all their operations, with average daily traffic (ADT) down a whopping 61%:

Tranurban Recen Traffic Data - ASX TCL

Source: Company Presentation

Let me explain why the performance of the North American operations is not the biggest deal.

It comes down to the proportion of revenue derived from these projects.

You can see a revenue breakdown from their half-yearly for H1FY20 below:

ASX TCL Revenue Breakdown

Source: Transurban Group

You can see that their CityLink operation remains the cash cow for the business.

And the US operations, even though that revenue is in the form of strong USD, make up a far smaller chunk than their Australian operations.

That being said, how are infection rates in Montreal and Northern Virginia tracking?

These are where the North American projects are located.

Well, Montreal’s public health director Dr Mylène Drouin was quoted on Tuesday as saying that despite being hard hit by the virus, ‘we are on the descending curve.’

And Northern Virginia is also experiencing a drop in new cases.

So I wouldn’t be surprised if the North American operations slowly get back to normal in the coming months.

We will know more when TCL releases its May and June numbers on 22 June.

The big risk though is if Victoria has to return to a lockdown, home of their big earner, CityLink.

Victoria recorded an uptick of 21 new cases today.

Not the best news, but it’s also hard to see the government walking back eased restrictions.

There could be a feeling out there that we just need to get on with things or else the economy will go further down the drain.

The strong rise in the TCL share price then, reflects not just the enthusiasm about a return to normal but the specific circumstances of the regions they operate in relative to their proportion of overall revenue.

Five Aussie Superstars Paying Top Dividends and Set to Thrive in the Post-Pandemic Era. Claim Your Free Report Now.

Outlook for TCL and the dividend

The current trailing yield for Transurban’s dividend is just over 4%.

Back on 1 April, the company withdrew dividend guidance for the six months to 30 June 2020, and said, ‘it expects to pay its 2H20 distribution in line with Free Cash excluding Capital Releases.

It had previously expected to pay out 31 cents a share.

The rise in the TCL share price may be on the expectation that the company will be able to be a bit more generous with its dividend than their April update hinted at.

For reference, here are some forward estimates for TCL courtesy of Market Screener:

ASX TCL Forward Estimates

Source: Market Screener

All up, these numbers indicate that 2022 could be the turning point for Transurban and that its dividend could be better than it was expected during the March market lows.

If you are looking for more dividend stocks, be sure to read Greg Canavan’s brand new ‘Five Dividend Stocks Set to Thrive in the Post-Pandemic Era’ report.

It’ll run you through some great options on the market.

You can get that right here.

Regards,

Lachlann Tierney,

For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


Leave a Reply

Your email address will not be published. Required fields are marked *

The Rum Rebellion