@F01 Thanks for your comments. Your point about the sensitivity...

@F01

Thanks for your comments.

Your point about the sensitivity to TGR assumptions is well made, as even the tiniest difference in the underlying growth rate can have a meaningful impact when compounded over a 42-year period.

In fact, the point of my analysis was not really (or not so much) to try and quantify the absolute level of the expected IRR, but rather to compare the implied IRR of the Westconnex to the one of the existing portfolio, under the same TGR and CPI assumptions.

And it is in that respect that I personally do not find the deal particularly compelling.

To put it in a different way, if the fair IRR for this deal were (for argument’s sake, and from the perspective of an existing shareholder) 9.14% pa, i.e. 100bp above the one of the existing assets, to compensate for the back-loaded cashflows and the additional development risk, then you would need the TGR of the Westconnex to exceed the TGR of the existing Transurban assets by 9.14%-7.38% = 1.76% pa.

Can that happen? Sure, but it seems rather on the aggressive side to me, even factoring in future efficiencies and sustained population growth in the right areas.

So, in the end, it boils down to how confident one feels about the future outperformance of Sydney’s TGR vis-a-vis Melbourne, Brisbane, Washington, Montreal, etc. And that is way beyond my limited forecasting skills, hence my unenthusiastic reaction to this deal, given the large weight TCL had in my portfolio prior to it.

But you’re right, there is upside risk to this assessment; on balance, I am definitely trying to err on the conservative side of things.

Cheers