Stock of the week: Transurban (TCL)

by Nov 20, 2020Market Reviews

Stock of the week: Transurban (TCL)

With the vaccine on the horizon, I was thinking about an industry that should indirectly benefit from an increase in worldwide economic activity. For example, we can safely assume that airline equities will rally on the back of confirmation of a working vaccine. However, ancillary services to airlines should follow through with the airline rally, for example, companies who make the food for the airlines or airports.
 
I want to think even deeper. What company would benefit from the ancillary services starting up? My logic is that the deeper we go, the more likely the stock will not be followed. Therefore come earnings season, the stock does well, and the market realizes, “oh of course!”
 
 
I believe it’s best you look in the pockets of the market that you’re personally interested in for these types of things. For example, I have been a massive fan of FarFetch as it merges the luxury consumer, which is mostly unaffected by the pandemic, with a similar business model to that of Amazon. FarFetch benefited from the Coronavirus, as people wanted to stay home. Therefore, the checklists for the stock of the week is
 
  • Benefit from an increase in economic activity
  • Ancillary of an ancillary service 
  • A market that I’m fond off
 
I am a massive fan of cars. I believe once a vaccine is released, there will be a boost in travel, and consumers who initially took public transport will start looking into purchasing a vehicle themselves due to heightened Coronavirus fears. I thought maybe there would be an increase in tyre sales – Investments in Goodyear? Too obvious and quite competitive. What’s similar to a brokerage service, in which there is indifference to what type of customer they serve?
 
Toll roads.
 

TCL has rebounded nicely over the past year – However there may still be some value left due to future catalyst

 

Transurban’s Business

Transurban operates CityLink, a massive Toll road network in Melbourne, Australia.

 

Transurban’s business is relatively simple. They operate 17 toll road networks across Sydney, the United States, and Canada. 
 
 

Transurban – Catalysts:

The primary catalyst for Transurban is the recovery in travel once the Coronavirus subsides, and a vaccine is distributed all around the world. However, further tailwinds include the individuals who purchase vehicles due to Coronavirus concerns lingering long after it has subsided. 
 
Transurban also operates in a freely regulated market. Having a monopoly on crucial routes may see an increase in prices for their Toll roads. 
 
Transurban is currently trading at around 17 times earnings, which is around average for all the ASX stocks. 
 
 
 

Transurban – Risks:

The work from home trend may see fewer individuals make trips back to the office as consistently as they did pre-Coronavirus. Considering that the bulk of traffic comes from commuters going to work and back, this is a prominent risk for the toll road operator. 
 
 
 

Transurban – Conclusion:

A stock that is not closely followed like Apple’s and Microsoft’s of the world is likely to benefit from the Coronavirus worldwide economy. I believe the company is slightly undervalued if we take into account more a higher than expected demand for in-vehicle travel.
 
 
 

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