Why this fund is tilting Transurban’s share price to outperform

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The Transurban group (ASX:TCL) The stock price has risen slightly since the start of the year, but a fund manager predicts better days.

Shares of the company have jumped 2% this year so far. In comparison, the S&P/ASX 200 Index (ASX:XJO) is down nearly 9% year-to-date.

So what’s the outlook for Transurban’s stock price?

Why might Transurban do well?

Transurban is a global toll road developer, operating routes in Melbourne, Sydney, Brisbane, USA and Canada.

Atlas Funds Management Chief Investment Officer Hugh Dive named Transurban as one of three companies that could do very well in a high interest rate environment.

Dive pointed out that “high interest rates don’t impact all businesses” in a recent interview with live wire.

Commenting specifically on Transurban, he noted that the company would make more profits as inflation rose. He said:

With utilities, you wouldn’t think they would normally do well in a rising rate environment and their biggest cost is interest.

But given that the debt is denominated on an average of about eight years, that’s not really moving. And every year with inflation, the tolls increase. For the next four years, Transurban said every 1% increase in inflation equals an additional $50 million in profit.

Transurban operates over 330 kilometers of road infrastructure with 21 assets in five markets. The company expects traffic to increase as the economy recovers from COVID-19. The return of domestic and international travel is also driving up traffic volumes on roads leading to airports.

ClearBridge Investments also recently named Transurban an “attractive” infrastructure ASX share that it holds with a “high quality” management team. The fund manager said:

Transurban is an attractive business due to its growing free cash flow profile driven by traffic growth, CPI-related toll increases and tight cost control resulting from their ability to increase dividends.

Transurban Share Price Overview

Transurban’s share price has fallen 0.22% in the past year and 0.84% ​​in the past month.

By comparison, the benchmark ASX 200 lost 8% in one year.

Transurban has a market capitalization of approximately $43 billion based on the current share price.


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