TCL
Company result
Transurban (TCL) was able to monetise the Chesapeake assets for an incredible price, during the period, which reflected a) pension fund demand for quality infrastructure assets and b) the very low real interest rate environment, which frees up the balance sheet capacity needed to overpay for these assets.
That news isn’t new, although it was a contributing factor to our decision to exit the stock, post a strong share price rally that begun back in May.
Otherwise, whilst TCL is normally lauded for it’s defensive, resilient earnings profile, it is acutely vulnerable to the stay-at-home COVID related effects. As such, it isn’t a great stock to be owning through an environment in which the R0 appears > 1, even with fairly restrictive lockdowns in place.
Secondly, it appears that a few projects are encountering difficulties, most prominently West Gate, in which it appears that all parties will need to throw more capital at the problem. That’s just the sort of thing that tends to get worse before it gets better.
Thirdly, and most importantly to our minds, is that TCL is a very long duration stock. That means the sensitivity of the market capitalisation of the company, to changes in the level of rates, is very high, and in this case, the higher the change, the lower the valuation,
Given our view that real yields are set to move higher, we wish to make sure that the portfolio is not overly exposed to long duration names until after such a move.
Combined with the above factors/observations, we look elsewhere in the market.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.