Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Transurban investors still being taken for a bumpy ride
Transurban (ASX:TCL) shareholders are a patient lot. The toll-road group sits on a treasure trove of assets that are valued around $60 billion and typically come with locked-in annual toll increases – surely a recipe for a healthy share price.
Yet over the past five years, the share price has headed south, although much of the selling can be attributed to COVID-19, taking about $5 off the $15 share price in early 2020 when investors realised the enormity of the pandemic’s economic cost – and its impact on road transport. It closed on Tuesday at $13.37.
Even so, it’s been a lacklustre share market performance for a group that holds assets such as Brisbane’s Clem7, Melbourne’s CityLink and Sydney’s WestConnex, and is expected to deliver the West Gate tunnel project (pictured) in Melbourne and the 495 Northern Extension (Project NEXT) in the US state of Virginia later this year.
Certainly its recent performance and forward guidance would suggest there should be greater investor interest – even allowing for the $15 million net loss for the first half to December 31, 2024, due to the $143 million of costs related to a legal battle with rival Melbourne toll-road operator Connect East.
Growth has been resilient, with the company recently reaffirming its 2025 distribution guidance of 65 cents a stapled security. This represents about five per cent growth compared with a distribution of 62 cents in 2024, signalling management’s confidence in the company’s near-term outlook.
Indicators for 2025 are promising, with group average daily traffic up 3.6 per cent for the December quarter. Growth has been particularly strong in Sydney, with a 4.7 per cent increase, while North American operations have shown robust performance with 6.4 per cent growth. Melbourne and Brisbane have also demonstrated steady improvements, up two per cent and three per cent, respectively.
A crucial factor for investors to watch in 2025 will be the ongoing negotiations with the NSW government regarding toll reform.
The company is working through the government’s Direct Dealing framework, with discussions focused on achieving positive outcomes for Sydney motorists while protecting the $36 billion investment made by Transurban and its partners over the past two decades.
The government has indicated its preference for a negotiated outcome with concessionaires, emphasising the importance of respecting existing contracts. The resolution of these negotiations could have significant implications for Transurban’s Sydney operations, which generate the largest share of proportional toll revenue, at $1.767 billion in 2024.
Announcing the interim results, chief executive officer Michelle Jablko said management was engaging constructively with the government, with the group having progressed to Stage 2 of the Direct Dealing process, which is a step closer to achieving an outcome that meets the needs of government, motorists and investors.
“The government has stated the importance of respecting the value of existing contracts and revenue, while finding solutions that seek to protect toll road investors from losses and delivering meaningful reform that helps customers and communities in practical ways,” said Jablko.
She also pointed to Transurban’s growing focus on customer engagement and sustainability initiatives. The company’s Linkt Rewards program has experienced significant growth with membership increasing five-fold over the past year to more than one million members.
This customer-centric approach could help maintain strong community support for toll roads, with Jablko telling shareholders that Transurban continued to differentiate itself through “technology that improves the end-to-end customer experience by enhancing tools that assist customers in making travel decisions”.
The company has indicated it will continue to actively explore potential new markets in 2025, focusing on areas where it can leverage its strategic advantages, with New Zealand being mentioned in despatches.
This could include both responding to market opportunities and proactively developing new proposals for government stakeholders. Whatever the initiative, the board and shareholders will be hoping it stirs investor interest.
