Ann: Transurban Investor Presentation, page-4

Coincidentally, I too used 15% FCF growth in my prospective FCF yield forecasts but clearly this is quite generous given the $174m capital release is a one-off, as you also note

@madamswer

Note that the 174m$ was in last year’s results: DH16 FCF was 680m$, of which 506m$ was underlying and 174m$ was capital release from NorthWestern. Therefore the 15% underlying FCF increase (from 506m$ to 582m$) is real. Reported FCF was down 14.4%.

One issue that I have is your omission to account for TCL's debt in your yield calcs.

You’re right, the 5.93% forward yield mentioned above is a forecast dividend yield, not a FCF/EV yield.

If you wish to calculate a forward FCF/EV yield for the same time horizon (FY2020), then you have the following:

Current Market Cap: 2.222bn * 11.44$ = 25.420bn$
Current Net Debt: 13.933bn$ + 0.472m$ - 2.164m$ = 12.241m$
Future Funding Needs to FY2020: 5.70bn$ – 0.55bn$ (Retail Entitlement Offer proceeds) = 5.15bn$ FY2020 EV: 25.420bn$ + 12.241bn$ + 5.150bn$ = 42.811bn$

Then, assuming 2.25bn$ Pre-Interest FCF in FY2020 (which corresponds to 1.50bn$ Free Cash, according to my estimates), you have:

FY2020 FCF/EV: 2.25bn$/42.811bn$ = 5.26%

Therefore, on an unleveraged basis, the prospective yield is lower (as it should be), but not materially lower than the corresponding dividend yield. Which, in my mind, kind of makes the point that the size of TCL’s debt does not detract very much from the investment case, all things considered.