Transurban designs, constructs and manages urban toll roads in Australia and North America. Its main road networks are located in Sydney, Melbourne and Brisbane, and it has interests in two roads in Virginia, USA, that service Washington DC and the surrounding area.
The company’s March-quarter traffic numbers were generally pleasing, in our view. Average daily traffic (ADT) for the quarter overall increased 2.7%, despite the negative impact of the Easter holiday period falling into the quarter’s end, with an estimated drag of about 0.6%. We maintain our Buy recommendation on Transurban with a target price of $14.50.
- Local performance – The majority of Transurban’s toll roads reported FY18 year-to-date (YTD) growth ahead of our full-year numbers – for example, Sydney’s M2 growth of 2.9% versus our 2.1% estimate and M7 growth of 3.2% versus 3.0% and the M5 2.9% versus 2.8%. Melbourne’s CityLink freeway continues to be disrupted by the state's CityLink Tulla Widening (CTW) project and Swan Street Bridge works, so YTD growth of 0.3% was slightly below our estimate of 0.9% for FY18, although we would expect this gap to close in the June quarter.
- US performance – Across the Greater Washington Area, ADT decreased 3.9% during the quarter. We believe traffic on the I-95 and I-495 expressways was affected by unseasonal weather and the timing of the spring break, while the I-495 was cycling a tough comparable period with March quarter traffic benefitting from significant maintenance works and disruption on the Washington Metrorail system.
- Development projects – Importantly, Transurban’s various development projects appear to be progressing either on time or slightly ahead of schedule. For example, Sydney’s NorthConnex project has seen 20km of the 21km of tunnelling excavated, as well as the on- and off-ramps. Work to integrate the tunnel with the M2 motorway is expected to complete about one-month ahead of schedule, in early May. Construction commenced on the West Gate Tunnel Project in January 2018, with more than 800,000 work hours already invested. The Monash freeway upgrade is on schedule for completion this year, and work is progressing on the I-395 in the US.