When inflation = profit: Why this fundie is tipping the Transurban share price to outperform

piggy bank at end of winding roadpiggy bank at end of winding road

The Transurban Group (ASX: TCL) share price has moved slightly ahead in the year to date, but one fund manager is predicting better days ahead.

The company’s shares have leapt 2% this year so far. In comparison, the S&P/ASX 200 Index (ASX: XJO) has lost nearly 9% year to date.

So what is the outlook for the Transurban share price?

Why could Transurban do well?

Transurban is a global toll-road developer, operating roads in Melbourne, Sydney, Brisbane, United States and Canada.

Atlas Funds Management chief investment officer Hugh Dive has named Transurban as one of three companies that could do quite well in a high interest rate environment.

Dive highlighted “high interest rates don’t impact all companies” in a recent interview with livewire.

Commenting on Transurban specifically, he noted the company will make more profit as inflation rises. He said:

With the utilities, you wouldn’t think that they would normally do well in a rising rate environment and their biggest cost is interest.

But given that the debt is termed out on an average of about eight years, it’s not really moving. And every year with inflation, the tolls go up. For the next four years, Transurban has said that every 1% increase in inflation equals another US$50 million in profit.

Transurban operates more than 330 kilometres of road infrastructure with 21 assets in five markets. The company is expecting traffic to increase as the economy recovers post-COVID-19. Returning domestic and international travel is also driving up traffic volumes on roads that lead to airports.

ClearBridge Investments has also recently named Transurban as an “attractive” infrastructure ASX share it holds with a “high-quality” management team. The fund manager said:

Transurban is an attractive company due to its increasing free cash flow profile driven by traffic growth, toll increases linked to CPI and strong cost control resulting in their ability to increase dividends.

Transurban share price snapshot

The Transurban share price has fallen 0.22% in the past year, and 0.84% in the past month.

In comparison, the ASX 200 benchmark index has shed 8% in a year.

Transurban has a market capitalisation of about $43 billion based on the current share price.

The post When inflation = profit: Why this fundie is tipping the Transurban share price to outperform appeared first on The Motley Fool Australia.

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Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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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