An ASX-blue chip with growing dividends and inflation tailwinds behind it

Record traffic, peak inflation and a pullback in bond yields have helped Transurban (ASX: TCL) shares reach a two-year high, up 15.5% year-to-date. 

“Bond rates remain a major driver of Transurban performance, and the ideal scenario is emerging of falling bonds with inflation remaining elevated,” Macquarie analysts penned in a note released on Tuesday.

“Upside remains around any Eastlink acquisition which can use some of Transurban’s latent debt capacity.”

The note reaffirmed an OUTPERFORM rating with a $14.65 target price. At the time of writing, Transurban was trading at $14.68 a share.

Transurban 5-year price chart (Source: Market Index)

Record traffic results and new assets

March quarter traffic rose 12.9% year-on-year, well-exceeding pre-pandemic levels and marking a record third quarter result for the business. Transurban has been posting record traffic figures since the June quarter 2022. 

“Traffic was particularly strong in Sydney and Brisbane, with positive underlying performance, as well as contribution from new assets and enhancements that have come online over the past few years,” Transuban said in an announcement on Monday.

In addition, with Sydney’s WestConnex M4-M8 link opening on 20 January, the toll road operator revealed that traffic has already exceeded its original project expectations.

Macquarie’s take: Positive macro, disappointing Citylink

“Headline growth was large at 12-15% across roads with benefits of COVID unwinding, road openings (M4-M8) and lane widenings (Logan) occurring,” said Macquarie.

Macro conditions were another tailwind for toll road operators, with factors such as population growth getting back on track – translating to better rego ownership, employment growth of 1.6% to 2.3% across all regions and truck growth at 4% to 8% – suggesting limited economic slowdown.

The only negative factor was wage inflation – currently around 3.4% – which is outpaced by rising toll prices, but “even this is mitigated in NSW by increased cash back for toll road usage and fuel price growth slowing,” says Macquarie.

Melbourne’s Citylink was viewed as one of the major disappointments, with the March quarter rebound coming in below expectations. Despite the macro tailwinds, traffic was tracking 6% below pre-Covid levels.

“Working from home appears to have a larger impact on the road than other states,” the analyst said.

Earnings outlook

Source: Macquarie Research