Acquisition Appears Attractive and Track Record Remains Stellar but Upside Seems Limited

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Equity Capital Markets

Transurban Group / Equity Capital Markets

Transurban Group was the logical buyer of the Airportlink M7 toll road in Brisbane as it would complete its southeast Queensland toll road network, hence, the acquisition did not come as a surprise.Transurban's 62.5% share of the equity portion of AUD 657 million will be funded by a AUD 1025 million equity issue, which will also allow AUD 350 million of debt repayments.The net effect is an increase of 1.4% in our discounted cash flow-based fair value and a lift in our rounded fair value estimate to AUD 9.00 per security.Although the rights price is above our fair value, Transurban offers a reasonable 2017 pretax distribution yield of 5.1%, and we forecast a solid five-year CAGR in distributions to 2020 of 9.5%.Hence, we recommend shareholders consider taking up their entitlements to the 1:18 rights issue, assuming doing so is in line with their specific investment goals.Analysts: Carolyn Holmes &amp; Adrian Atkins

Transurban Group was the logical buyer of the Airportlink M7 toll road in Brisbane as it would complete its southeast Queensland toll road network, hence, the acquisition did not come as a surprise.Transurban's 62.5% share of the equity portion of AUD 657 million will be funded by a AUD 1025 million equity issue, which will also allow AUD 350 million of debt repayments.The net effect is an increase of 1.4% in our discounted cash flow-based fair value and a lift in our rounded fair value estimate to AUD 9.00 per security.Although the rights price is above our fair value, Transurban offers a reasonable 2017 pretax distribution yield of 5.1%, and we forecast a solid five-year CAGR in distributions to 2020 of 9.5%.Hence, we recommend shareholders consider taking up their entitlements to the 1:18 rights issue, assuming doing so is in line with their specific investment goals.Analysts: Carolyn Holmes &amp; Adrian Atkins

Airportlink M7 Acquisition and Equity Raising. In Depth Analysis