Industrials

Transurban posts highest final dividend since 2019: Are acquirers now circling?

Mon 20 Jun 22, 2:26pm (AEST)
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Key Points

  • Transurban to pay a total FY22 dividend of 41 cents
  • Transurban’s share price has struggled over the last couple of years
  • Transurban is one of three remaining ASX-listed Australian infrastructure companies

Transurban (ASX: TCL) share price was up 1.36% at noon after the toll road operator revealed plans to pay a distribution of 26 cents a security for the six months ending 30 June 2022, a 21% increase over the 21.5 cents a security payment it made this time last year.

The final dividend comprises a 24 cent a security payment from the Transurban Holding Trust and its controlled entities, with the balance being paid from Transurban Holdings Limited.

This takes the FY22 total dividend to 41 cents.

Two cents of total FY22 distribution are fully franked and the distribution may also be tax-deferred, more details will be released in August.

The distribution also includes around 2.5 cents per security in capital releases, relating to Transurban’s increased stake in WestConnex where the capital releases are used to minimise the dilutive impact of the deal.

Is Transurban a takeover target

Good news on the dividend front aside, there’s growing speculation that the current volatile trading environment may see suitors circle for infrastructure assets like Transurban, especially while they attractively priced.

According to data group Preqin, there was around US$304bn worth capital looking to pick off infrastructure assets at the end of last year.

The demand for infrastructure assets – with safe haven earnings profiles - is expected to mirror the resurgence of inflation. According to data compiled by Dealogic, $154bn worth of Australian infrastructure asset (sales) over the past five years now makes for slim pickings.

With around half that value having been lost from the ASX, Transurban is one of only three remaining ASX-listed Australian infrastructure companies, the other two being tollroad groups Atlas Arteria (ASX: ALX) and gas pipeline operator APA (ASX: APA).

Valuation aside, what’s likely to be attracting acquirers to Transurban is the toll road operator’s relatively stable earnings stream, and inflation-adjusted contracts.

Time for bidders to make their move?

Would-be acquirers of Transurban may be encouraged to make their move following revelation that Atlas Arteria is now in play after the recent 15% stake taken by IFM Investors, which is understood to be contemplating a full $7.8bn takeover bid.

According to  The Australian, APA is also being looked at by at least one potential buyer, and US investor Global Investment Partners was named as one fund that “could buy the business”.

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Transurban share price over 12 months.

What brokers think

While Transurban’s share price has struggled over the last couple of years, a share rally late January appears to have coincided with plans to reward shareholders with a considerably higher distribution in FY22.

Mid-April Morgans also retained its Add rating after factoring in rising dividend per share (DPS) forecasts and an increasing valuation (target price $14.42).

The broker expects Transurban to continue to attract investors due to its market cap weighting, the high quality of its assets, management team, balance sheet, and growth prospects.

Early June Credit Suisse downgraded Transurban to Neutral from outperform (target $13.60), and after a strong run and encourages investors to consider taking profits.

Meantime, Ord Minnett doubts Transurban’s positive story is over yet, urges investors not to get stuck in the bond proxy narrative, and is forecasting a compound annual growth rate (CAGR) of 10% per annum over FY21–31.

The broker retains an Accumulate rating, with an increased price target of $15.85, from $15. (06/05/22).

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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