Created by Stratton Oakmunt. Reached final twelve at USYD.

1. Transurban Group (TCL.AX)
Stratton Oakmunt

2. Overview
 Transurban Group (TCL) is a ASX T20 company
involved in the development, operation, and
maintenance of toll roads in Australia and the United
States.
 GICS Industry Group: Transportation, GICS Sector: Industrials
 TCL primarily generates its revenue through a
diversified suite of toll road assets in Sydney,
Melbourne and Brisbane in Australia and in Northern
Virginia, USA.
 Diagram of assets:
 Financials:
Metric 2012 2013 2014 2015
Revenue m 1,132 1,152 1246 1726
EBITDA m 499 666 875 1241
P/E x 145.5 53.5 39.1 71
Profit (norm) m 54.9 171.7 274 236
EPS c 3.7 11.5 17.7 12.3
DPS c 29 30.5 34.9 39.8
Yield % 5.4 5 5 4.6
Highlights
• Strong dividend growth
• Consistent yield
• Increasing Profits
• Double Digit EBITDA Growth

3. Investment Thesis
Key microeconomic factors
 High growth and dividend yield
 Strong management focus on double digit
distribution growth as reflected in the recent
increase in dividend guidance
 Since FY09, distribution has experienced
compound annual growth of greater than 10%
 Aggressive payout ratio, consistently
exceeding 100%, making TCL an attractive
yield play.
 Well-timed project pipeline
 Smooth transition of projects within different
stages of development, ranging from exclusive
negotiations with various Governments, to
competitive bidding processes. TCL however
continually aims for further growth and projects
 Revenue has embedded inflation protection
 Pre-defined tolling regimes which allow for toll
escalations (at least) in line with inflation
 Strong debt capacity
 S&P BBB+ credit rating suggests strong
capacity to meet financial commitments
 Strong capability to refinance debt
 Consistent increases in operational
efficiency through technology
 Perpetual reinvestments into improving
efficiencies such as GLIDE implementation to
prevent ‘leakage’ and resultantly provide
greater returns on capital.
 Collection of consumer data allows for
dynamic toll pricing to match consumer
preferences and behaviour
 Continued insourcing of operations and
maintenance
Key macroeconomic factors
 Dominant competitor within the
industry
 Has no significant domestic
competitors within the toll road
asset business
 Consistent growth in key
macroeconomic drivers
 In recent times, strong Gross
State Product (GSP) growth and
population growth, both of which
are key drivers for the industrials
sector, particularly for roads
infrastructure
 Increasing trend towards public-
private partnerships in building
infrastructure
 Private sector now contributes
close to 50% of Australia’s
infrastructure investment
 Predicted increase in
congestion belies an increased
need for infrastructure
 Within Australia, 70% of all
domestic passenger movements
occur on roads and driving by far
remains the preferred means to
do so within cities. Ceteris
paribus, this increasing statistic
will increase congestion and
particular constraints on roads
will emerge, impacting
productivity
 Truck traffic is predicted to
increase by around 50% to 2030
Catalyst: Investor Day 2016
 Historically, Investor Days focus on
upcoming opportunities (expansions,
acquisitions etc.) and provide
details/benefits of current initiatives
 During HF16 Presentation,
management hinted that more
information would be provided
regarding how technology could be
used to improve network
 Expected benefits of strategic
initiatives such as road pricing study
and digital platform to be announced
 Generally more clarification and
details disclosed regarding upcoming
projects and strategy developments
 Investor Day 2015
 Emphasised company’s participation
in policy-making such as road pricing
reform
 Launched new road network
preference study to gather data
regarding congestion and road usage
 Announced technology partnerships
with Singtel and QuantumIT
 Investor Day 2014
 More details regarding performance of
network disclosed especially USA
assets
 Strategy and timeline for integrating
new Queensland assets provided

4. Valuation
Summary
Recommendation
 Buy
Closing Price as at March 30
 $11.14
Price Target
 $12.05
Methodology
 Discounted Cash Flow Model
 Forecasted EBITDA, change in working capital, tax and capex for a period of
10 years and discounted appropriately in order to reach free cash flows (FCF)
for the period until terminal
 Terminal value was calculated, discounted and added to the forecast FCF to
reach a NPV of TCL
 Corporate assumptions regarding WACC, terminal growth rate, and corporate
tax rate were made
 Terminal growth rate was assumed to be 2%, below GDP growth forecasts of 2.7%
 WACC was calculated to be 8.2%
 Corporate tax rate was assumed to be 30%
 Sensitivity table
Terminal Growth Rate (%)
24,538 1.0% 1.5% 2.0% 2.5% 3.0%
WACC(%)
7.2% 26,163 27,618 29,353 31,456 34,061
7.7% 24,220 25,414 26,817 28,490 30,519
8.2% 22,550 23,541 24,693 26,047 27,661
8.7% 21,098 21,931 22,888 23,999 25,305
9.2% 19,826 20,531 21,335 22,258 23,331

5. Appendix A: Project Pipeline
 NorthConnex
 Expected project completion late 2019
 Proceeding to Plan and Budget ($1.3B)
 Logan Enhancement
 Exclusive Negotiations with QLD government
 Final proposal expected to be submitted second half 2016
 Airport link M7 (QLD)
 Acquisition expected to be closed by 3QFY16
 Increased USA Presence
 Exclusive Negotiations for 11Km extension of 395 Express Lanes
 Shortlisted Bidder for 1-66 Express Lanes Concession, Bidders
selected by end of 2016
 Key times
Source: Company presentation

6. Appendix B: Key growth opportunities
 Ability to enhance capabilities of current motorway
networks
 M5 Widening, Tulla Widening
 Integration of consistent and efficient technology
 GLIDE
 Application of sustainability initiatives to enhance road
user and local community experiences
 Management of incidents
 Customer service
 Expansion of asset portfolio through capital
expenditure and acquisitions
 395 Express Lanes
Source: Company report

7. Appendix C: Toll road concession periods
Source: Company presentation
Note: due to financial close of Northconnex, concession length of M2, LCT and M7 extended to 2048

8. Appendix D: Asset map
Source: Company website
BNE
SYD
MEL
VA

9. Appendix E: Industrials Sector overlay with ASX200
Source: ASX
Legend:
Red = Industrials
Blue = ASX200
Whilst being more
volatile, the
industrials index has
outperformed the
ASX200 over the year

10. Appendix F: Historical Balance Sheet
Source: MorningStar
• High Debt/Equity mainly due to
capital raising through borrowing
in order to fund capacity increases
• Strong increase in retained
earnings from -$4801m to $3602m
-> strong future capital
expenditure and investment
position
• Most debt is long term with
average maturity now 9.1 years
due to refinancing efforts
• Increasing intangibles due to
increases in toll road concessions
from acquisitions such as TQ in
QLD
• Improved liquidity as shown by
increase in cash from $323.1m to
$1249m

11. Appendix G: Profits/Earnings
Source: Company Presentation
• Maintained high EBITDA margins which have grown over last 3 years 57%
to 66%
• Reflected in strong net profit margins
• Margins should continue to increase given management’s focus on
operational efficiencies such as installation of GLIDe tolling system
on M7
• Profit after tax has been on uptrend for last 5 years, sudden drop due to
extraordinary costs involved in acquisition of Queensland Motorways
• Would otherwise be $236m

12. Appendix H: Individual EBITDA streams
Source: Company presentation
 Insights
• Increasing proportion
of revenue coming
from Virginia
• Sharp increase in
Cross City Tunnel
revenues due to recent
acquisition
• Increase in M5 due to
lane widening and
truck toll multipliers
• Steady increases
everywhere else in line
with ADT growth of
approx. ~5%
2015
2014

13. Appendix I: Debt Refinancing
Source: Company presentation
Debt maturity as of 2015
Debt maturity as of 2014
As shown in diagrams, debt
maturity has been extended
significantly through refinancing
efforts with average maturity
increasing from 7.8 years to 9.1
years

14. Appendix J: Detailed Valuation
 WACC calculation -> 8.24%
 Cost of equity
 10.42%
 Cost of debt
 6%
 Risk free rate
 2.49% (10 year government bond)
 Return on equity
 11.50%
 Beta
 0.88
 Shares on issue -> 2,035,532,721
 Free cash flows
 CAPEX
 Assume CAPEX grows at 7% p.a.
 Though CAPEX expenditure has sporadic growth, due to the recent acquisitions of the motorways in QLD, a large increase in
CAPEX should be expected. As roads age and use increases, CAPEX is also further required.
 Working Capital
 Assume growth at 3% p.a.
 Not necessarily realistic, however given sporadic outflows of TCL, an average over an extended period was taken and forecasted
forward
 Tax
 Given the highly debt leveraged nature of TCL, and the tax offsetting ability of debt/interest repayments, a nominal value of 20
million dollars tax was applied for the forecast

15. Appendix K: Potential risks
Source: Company presentation
 Traffic volume volatility
 Reduced traffic volumes or an inability to grow traffic volumes
 Low risk given continued urban population growth (see graph)
 Need for frequent capital raisings to fund growth/projects
 Can be a risk if adequate funding not procured for project
 Risk managed by diversifying funding sources and maintaining strong credit rating and strong
liquidity
 Future inflation/deflation impacting toll escalation
 High inflation will reduce real profits -> managed by keeping toll prices at least in line with
inflation
 Change in government policies
 Can be a risk if government policies regarding things like toll prices or infrastructure expenditure
is adverse to TCL
 Risk managed by playing a participative role in policy-making and having a government
presence through lobbyists
 Foreign exchange risk
 Exchange rate adjustments included in income statements -> affects net profit
 A depreciation in AUD causes overseas revenue to decrease in AUD value
 Managed using hedging instruments such as forward contracts
 Significant change in the elasticity of demand to toll increases
 Construction of competing/alternative routes

16. Appendix L: Population growth and GSP per state
Source: Australian Bureau of Statistics

17. Appendix M: Proportional Traffic Growth
Source: Company presentation

18. Appendix N: Average Daily Traffic (ADT) Toll Roads (trailing
twelve months)
Source: Charting Transport

19. Appendix O: Year on year ADT growth
Source: Charting Transport

20. Appendix P: Operational History
Source: Company site
 11 March 2016 - Transurban Group announced that the Company will be added to the All Ordinaries Index and S&P/ASX 20 Index effective after the close of trading on 18
March 2016.
 09 March 2016 - Transurban Group reported NPAT of $81m for the half-year ended 31 December 2015. Revenue from ordinary activities were $1,056m, up 9.54% from
last year. Basic and Diluted EPS were 4.2 cents compared to (9.7) cents last year. Net operating cash flow was $430m compared to an outflow of $27m in the pcp. The
interim dividend declared was 22.5 cents, compared with 19.5 cents last year.
 19 January 2016 - Transurban Group announced its traffic and revenue data for the December quarter 2015. For the December 2015 quarter, on a statutory basis, toll
revenue increased by 16.2% to $433m when compared to the pcp. Proportional toll revenue, which the Company believes is the most accurate reflection of the portfolio's
performance, increased by 17.9% from the pcp to $454m. For the first half of FY16, proportional toll revenue increased by 18.4% from the pcp to $900m. For the December
2015 quarter, Sydney proportional toll revenue increased 14.2% to $192m. Average daily traffic (ADT) increased 7.8% to 631,000 trips. Melbourne toll revenue increased
6.6% to $155m. ADT increased 1.4% to 835,000 transactions. Brisbane proportional toll revenue increased 9.3% to $67m. ADT increased 8.7% to 329,000 trips.
 18 December 2015 - Transurban Group announced the completion of the retail component of its fully underwritten pro rata accelerated renounceable entitlement offer with
retail entitlements trading. The Retail Entitlement Offer has raised gross proceeds of $288m from the issue of 30m new securities at an issue price of $9.60 per new
security. This represents the final stage of its $1.025bn equity raising announced on 24 November 2015. 9m new securities were offered for sale under the retail entitlement
bookbuild. The settlement date for new securities issued under the Retail Entitlement Offer and the retail bookbuild is 23 December 2015. Allotment of these securities is
expected to occur on 24 December 2015 and trading on ASX is expected to commence on 29 December 2015.
 17 December 2015 - Transurban advised that the institutional component of the Offer was successfully completed on 27 November 2015 and the retail component of the
Offer (Retail Entitlement Offer) closed on 15 December 2015. The Company advised that the retail bookbuild will be commenced after market close on 17 December 2015.
The settlement date for new securities issued under the Retail Entitlement Offer and the retail bookbuild is 23 December 2015. Allotment of these securities is expected to
occur on 24 December 2015 and trading on ASX is expected to commence on 29 December 2015.
 08 December 2015 - Transurban advised that Victorian Government will progress the Western Distributor proposal through to exclusive negotiations between the parties.
The Company will work with the Victorian Government to finalise the scope of the project, including the design of the Western Distributor tunnels and the exact locations of
connections to the Port of Melbourne and CBD. The project scope and construction costs for the project will be confirmed following completion of a statutory planning
process, which will commence in 2016. The Western Distributor project is currently expected to cost around $5.5bn, with exact construction costs to be determined through
a competitive tender process and confirmation of the final project scope. The Company anticipates financial close for the project in 2017.
 27 November 2015 - Transurban Group announced a 1 for 18 pro rata accelerated renounceable entitlement Offer of new Company stapled securities held as at the record
date of 27 November 2015, at the Offer Price of $9.60 per new security. The retail entitlement Offer will close on 15 December 2015.
 27 November 2015 - Transurban Group announced the successful completion of the institutional component of its $1.025bn accelerated renounceable 1 for 18 pro rata
entitlement offer with retail entitlements trading. The Offer was announced on 24 November 2015 and is fully underwritten. The retail component of the Offer will open on 3
December 2015. The Institutional Entitlement Offer will raise gross proceeds of $738m and will result in the issue of 77m new Company stapled securities. Entitlements not
taken up by eligible institutional security holders and entitlements of ineligible institutional security holders were sold and cleared in the institutional shortfall bookbuild at
$10.10 per security, a $0.50 per security premium over the offer price of $9.60 and a 0.3% premium to distribution adjusted TERP of $10.07 per security.
 26 November 2015 - Transurban announced that the Australian Competition and Consumer Commission will not oppose the proposed acquisition of the AirportLink M7 in
Brisbane by a consortium led by the Company. The consortium consists of AustralianSuper, Tawreed Investments and the Company (Transurban Holdings, Transurban
International and Transurban Infrastructure Management) (Transurban consortium). Tollroad operators bilaterally agree on roaming fees to ensure the interoperability of
motorists' tags on all Australian tollroads. It will continue to be in the interest of the Company, and other tollroad operators, to maintain the interoperability of motorists'
electronic tags.

21. Appendix Q: TCL performance leading to investor days
Source: Morningstar
How TCL has performed going into investor days
 TCL has generally performed very well in the lead up to investor
days with investors anticipating good news and/or promising
upcoming projects
 However there is a slight drop off immediately afterwards
although this is usually recovered within a week
 This is shown by graphs below.
 5 May 2015 Investor Day
 18 September 2014 Investor Day

22. Appendix R: Areas of concern
 Brisbane:
 Region has high exposure to resource sector -> end of mining boom -> lower commercial traffic volumes
 TCL acquired Airport Link M7 from BrisConnections who went into receivership in 2013 due to lower than expected traffic
and unsustainable business model
 Industry
 Commercially, rail expected to surpass roads as the favourable mode of freight transport
 Competition
 Increasing presence of competitors such as Macquarie Atlas (MQA) in bids for Domestic Toll Road concessions
 US roads distribution lock up
 Cash flow of $28m from US assets cannot be distributed until associated accumulated interest Paid off

23. Appendix T: Industrials Sector Trends
 Growth guided by M&A
 Heavily influenced by macroeconomic factors
 Lower oil prices means drivers more inclined to drive due to lower cost
 Impact of falling Melbourne CBD vacancy rates resulting in increasing traffic activity
 However QLD is of concern given slowing regional economic and population growth