Transurban CEO departure overshadows record traffic and upgraded dividend

Transurban's (ASX: TCL) half-year FY23 results had a lot to take in: Average daily traffic volumes hit 2.5 million for the first time, longstanding CEO Scott Charlton announced his planned departure and its A25 highway now has a new joint-owner.

Perhaps reflecting the news overload, Transurban shares are trading flat around noon but up 8.3% year-to-date.

2H23 Results

• Proportional toll revenue of $1.66 billion, up 42.6% on pcp

• EBITDA of $1.24 billion, up 53.7%

• Profit after tax of $41 million, up 139.9%

• Free cash of $845 million, up 84.0%

• 1H23 interim dividend of 26.5 cents per share

• FY23 dividend expected to be 57.0 cents, up 39.0%

Citi's take: Two big announcements steal the spotlight

Citi believes the two major announcements surrounding management and partnerships will "shift the focus away from the result".

"We believe confirmation of Scott leaving will be seen as a loss for Transurban investors, and expect the stock to react negatively to this news today," said Citi.

In parallel, Transurban reached an agreement with CDPQ as a 50% partner for its A25 toll road in Montreal. The transaction will net the company C$355 million (A$384 million).

Citi notes the transaction prices the asset at 17x its FY22 EBITDA compared to Transurban's acquisition pricing of C$840m (100% stake) in 2018 at 26x FY17 EBITDA.

"Pricing seems to have deteriorated, potentially reflecting (a) a 5-year reduction in remaining concession life since the acquisition (concession ends in 2042) and (b) higher interest rates," said Citi.

Back to earnings

The revenue figure was below Citi's expectations of $1.79bn but EBITDA was in line, reflecting better cost control and margins.

Transurban had previously guided to an FY23 dividend of 53 cents per share, so the upgrade today reflects a "strong performance across the business and 2-3 cents per share of capital releases," noted the analysts.

"We expect the stock reaction to be softer despite the DPS guidance upgrade, given the announcement of the CEO departing."

Still, Citi reaffirmed a BUY rating with a $15.70 target price. At the time of writing, Transurban shares are trading at $14.06.