You wouldn’t think a toll road operator could outperform in the middle of a pandemic. However, that’s exactly what Transurban Group (ASX: TCL) shares could do in 2020.
Why could Transurban shares outperform this year?
It’s not just me whose bullish on Transurban right now. Leading Ausbil fund manager, Paul Xiradis, is also keen on the Aussie toll road operator.
In fact, in a recent memo to Ausbil clients, Mr Xiradis said the fund has increased its exposure to Transurban with an eye to the coronavirus recovery.
Essentially, Ausbil’s base case is for a quicker than expected recovery. If the economy bounces back, that could mean a faster return to normal traffic numbers. That means more toll road income for Transurban both in Australia and North America.
Given the share market is forward-looking, this could mean Transurban shares have been oversold by investors fearing the worst.
What do the numbers say?
The Transurban share price has fallen 9.0% this year but is still outperforming the S&P/ASX 200 Index (ASX: XJO).
All in all, that doesn’t leave it in a bad spot. But if we do see a quick recovery, I agree that Transurban could be a bargain.
The Aussie toll road operator reported a 50% drop in traffic numbers in mid-April. That spooked investors and saw many selldown Transurban shares. However, things are starting to turnaround for the better. In the group’s 22 June trading update, Transurban reported its Australian traffic numbers were down 20% from early March and commented that the impact had peaked in mid-April, with a progressive recovery evident since.
Changing attitudes towards commuting could also help Transurban’s earnings. More Aussies are working from home, which could be a drawback on overall traffic numbers. However, those that are commuting could be increasingly likely to drive to work rather than use public transport due to heightened hygiene concerns.
Transurban also recently opened the M8 toll road and commenced tolling on the M5 East on 5 July. That’s good news for long-term growth and could be a cornerstone for future revenue.
Is now the time to buy?
The Transurban share price is still down on where it started the year. Despite some challenges, now could be a good time to pick up Transurban shares for a bargain if you’re bullish on a quick recovery.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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