A lot of debt, highly leveraged, u would not want global...

A lot of debt, highly leveraged, u would not want global interest rates to go up much, S&P 500 surged this evening and had a significantly positive closing tick so it would be hard to be bullish about TCL at these SPs, I would imagine but each to their own.


Transurban maintains a full development pipeline for its toll roads and FY18 guidance implies lower growth than previous years.
-Guidance may be conservative and capital raising considered highly likely
-Corporate costs expected to be sustained at higher levels
-Focus on expansion and constructing new toll roads

By Eva Brocklehurst
Transurban ((TCL)) maintains a full development pipeline in FY18 and strong employment, car registration growth and fuel usage continue the growth trend on its toll roads. Sydney is stable but there is the potential for further ramp up in Melbourne and Brisbane as the effects of roadworks diminish.
Nevertheless, FY18 guidance implies a lower growth year versus previous years. FY17 results were marginally weaker than many brokers expected because of an acceleration in costs. A combination of around 3% growth in journeys, CPI, toll increases and capital investment delivered around 11% growth in proportional toll revenue. Free cash flow per security increased 9%.
The company has provided FY18 distribution guidance for the first time, at $0.56 per security, up 8.7% on FY17. This is below the double-digit growth rates experienced over the last four years.
Free cash flow was covered 99% and this suggests some underperformance versus guidance provided back in February, although UBS acknowledges this is hard to pin down exactly. Distribution guidance for FY18 implies 9% growth versus the 13.5% growth experienced over the last four years. This reflects the run-off of a number of toll enhancements and funding costs for developments. UBS retains forecasts that imply 101% coverage of guided distribution, suggesting some potential upside.
Capital Raising?
Morgans suspects guidance is intentionally conservative, in order to sustain, or upgrade, the distribution into a capital raising. A trend of strong corporate costs growth continues, with heightened investment in business development acquisitions, customer initiatives and technology.
The company expects to fund current commitments from its balance sheet, supported by its distribution reinvestment plan and a possible future release of capital. Hence, equity capital may be used to fund the proposed West Gate Tunnel project (Melbourne), which has commercial close targeted for the end of the year.
Morgans suspects this may take place alongside a capital raising to fund acquisition of a stake in the NSW government's WestConnex sell-down, if the company is successful. The transaction is likely to be timed mid 2018. The NSW government has indicated it will sell at least 51% of WestConnex.
Macquarie observes the company is taking a very conservative line regarding development, expensing bid costs as they are incurred, having highlighted expectations that costs will remain elevated, reflecting the ongoing bidding opportunities within its development pipeline.
Credit Suisse also expects corporate costs to remain at the higher level as the company bids for WestConnex and maintains a focus on customer value initiatives. Distribution guidance is expected to increase at the first half result, when clarity is provided on CityLink (Melbourne) traffic post completion of the widening, to maintain growth above 10%.
Credit Suisse forecasts FY18 distributions of $0.57 per security. The broker also notes the potential for an equity raising for the West Gate Tunnel and forecasts around $600m.