Transurban Group (TCL) Share Recommendation

Submitted by Craig Strzelecki on 22 January, 2007 - 09:22

Transurban Group (TCL) have a maintained Hold rating and a share price target of $7.30 (lifted from $6.87) from share analyst Citigroup Investment Research(CIR). The upgrade in the share price target has come after upgrades to traffic estimates, generous inclusion of synergies with Sydney Roads Group (SRG - A$1.34; 2M) and cut in the risk free rate to Citigroup's house view of 5.75% (from 6.0%). Although there may be room for profit taking in the near term they see support for the shares at current levels due to liquidity in the market and therefore maintain their Hold rating. After a shaky start in 1H06, traffic on CityLink has rebounded and expected to further grow by at least 1% pa to 4.2% pa in 2007 due to Tullmarine/ Calder Interchange upgrade. While CIR continues to remain bullish on Westlink M7, they have cut down their traffic estimates in the medium term. The tangible benefits of merger are offset by full price paid for SRG. However, Transurban's proven track record of working effectively with Governments means it may realize option value in the future. CIR estimates low option value on a risk adjusted basis. Growth in the US — Transurban's plan to launch an investment vehicle in the US to source local capital to fund growth should help it earn management fees, which could add up to 33cps to CIR's assessment – lifting their $7.30ps valuation to a blue-sky figure of $7.63ps. As a result of upgrades to traffic projections, their forecast losses for the group have been reduced by 3%-6% from FY07e to FY09e respectively. EBITDA is set to grow with CAGR of 17% pa until at least FY10e.

Transurban Group Limited is listed on the Australian Stock Exchange (ASX) under stock code TCL. You can view their investor website here. TCL was listed on the ASX on 14 March, 1996. David Ryan is the Chairman for Transurban and Kim Edwards the Managing Director. Transurban is a leading international toll road developer and investor with major assets in Australia, an asset in the US (Pocahontas Parkway), and emerging interests in other US states and the UK. The company focuses on the long-term ownership and management of advanced electronic toll roads. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade TCL. Check your charts and good luck with your share trading!