TRANSURBAN KEEPS CHEWING

FOR good or for bad, the fabulous money-making monster that ate Melbourne – and Sydney and Brisbane – keeps munching and marching on.

Indeed, doing so, literally, across the three urban landscapes.

For good – for its investors, Transurban remains the most profitable business in Australia, generating an extraordinary 75c of gross profit out of every dollar of tolls.

For bad – for the motorists, businesses and taxpayers of the country’s three biggest cities, Transurban remains the most profitable ...

In Melbourne, its birthplace, Transurban makes a mind-boggling 88c gross in the dollar. The relatively poorer profits in Sydney (‘just’ 82c per $) and Brisbane (72c) and across the Pacific in North America (63c) dragged down the group number.

Yet, its urbane CEO Scott Charlton continues to maintain, and the political wood-duck otherwise known as the Victorian Treasurer Tim Pallas blithely agrees, that it’s no-where near earning the “super-profit” that could trigger a $5 billion-plus saving for Melbourne motorists.

So if 88c in the dollar ain’t a super-profit, would even 100c-plus in the dollar qualify? For I certainly wouldn’t put even that seemingly impossible beyond Charlton and Transurban.

Especially as Melbourne motorists will continue to see their tolls rise remorselessly every year – and for a dozen years extra to boot – at a pace more than double the rate of inflation. Year after year after year.

In the world of very low inflation (and wages growth) and relentless online competition, who else gets to levy that sort of government-guaranteed income rise every year?

The core and superb driver of the relentless rise in profitability is the way above-inflation toll increases every year intersect with relentlessly rising populations which deliver almost guaranteed (price inelastic) usage by both consumer cars and business trucks.

And the way the Transurban networks have unbreakable ‘locks’ on the three-city traffic.

There are three key figures which add to the fabulous, yet again, bottom line.

First, a solid 2.7 per cent rise in average daily traffic. That’s actual cars and trucks.

Second, the-above inflation toll increases – in Melbourne 4 per cent-plus.

Third, very modest cost increases – just 1.5 per cent, in line with general inflation, in underlying terms.

There’s plenty of growth left, in every market, in both volume and margin terms.

For reasons I’ve explained before, it’s all-but impossible for anyone else to compete for new linking projects; and when Transurban adds a new one, it just adds another profit layer to the core toll and volume growth.

Albeit, profitability looks like it’s levelling out around the 88c in the dollar In Melbourne. But it can and indeed is inching higher into the 80s in Sydney and Brisbane is starting to follow through the 70s.

The sleeping opportunities – for both project expansion and revenue growth – are in the US and Canada.

That Transurban business is relatively new and smaller and gross profit was ‘only’ 63c in the dollar. But it took a big jump up from sub-60c as heavy capex started to kick into actual traffic.