Transurban Group (ASX: TCL) maybe a road toll operator, but will rising fuel prices impact the share price?
Transurban shares climbed 2% on Thursday to finish the day at $13.22. For perspective, the S&P/ASX 200 Index (ASX: XJO) lifted 1.05%.
Let’s take a look at what is likely at play for the company.
Could rising petrol prices impact toll road revenue?
Transurban builds and operates toll roads in Sydney, Melbourne and Brisbane.
Oil prices have recently hit 13-year highs amid the Russian invasion of Ukraine. Brent crude oil prices reached nearly US$140 per barrel in early March. The international benchmark Brent Crude is priced at US$99.65 per barrel at the time of writing, according to Bloomberg.
However, broker Macquarie believes there is scant evidence fuel price increases will impact the road toll operator.
Macquarie has placed a $14.96 price target on the company’s shares. This is 13% higher than Thursday’s close.
Macquarie, quoted in the Financial Review, said:
Transurban has always remarked, in their experience, there is a very weak relationship to fuel price movements. This appears to be supported by academic research which cites elasticity of negative 0.04.
In October 2007, when fuel increased 18 per cent, M4 and M5 (Sydney motorways) traffic was either stable or higher. In theory, it should have fallen 0.7 per cent assuming the elasticity holds.
The team at Morgans also recently placed an add rating and $14.29 price target on the company’s shares, my Foolish colleague James reported. The company said:
We think TCL will continue to be attractive to investors given its market cap weighting (important for passive index tracking flows), the high quality of its assets, management team, balance sheet, and growth prospects.
Transurban share price snapshot
The Transurban share price has lifted just 1% in the past 12 months, while it has lost 4% year to date.
In the past month, Transurban shares have gained nearly 3%, while they have soared nearly 6% in the past week
Transurban has a market capitalisation of about $40.6 billion based on its current share price.
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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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