Transurban insists distributions to shareholders will not be threatened as its $7 billion swoop on a swag of toll roads across Brisbane consolidates its position as one of the world's biggest toll-road operators.
Chief executive Scott Charlton defended the price tag the toll-road operator and its partners, including AustralianSuper, paid for Queensland Motorways, even as the high earnings multiples stoked memories of the last decade's infrastructure acquisition boom.
Mr Charlton said he was ''delighted'' with the price, which was equivalent to more than 27 times last year's earnings for the roads portfolio. He said the measure was not an accurate way of valuing the acquisition, which delivers Transurban and its partners 70 kilometres of toll roads across Brisbane, including the Clem 7 tunnel and Gateway Motorway.
''Some people have talked about the price,'' he said. ''We think it's in line with market historicals on multiples. But that's not how we value it. We value it on discounted cash-flow basis and how it impacts on distribution.''
Mr Charlton confirmed the company's full-year distribution guidance for the 2014 financial year at 35¢ a security, with the 2015 distribution to be 39¢.
Transurban had averaged 10 per cent distribution growth in the past seven years and the company would continue to deliver solid growth, particularly considering south-east Queensland was one of the fastest growing markets in Australia, he said. Mr Charlton also said the company would not jack up tolls.
Transurban will raise $2.74 billion to pay for the $7 billion acquisition. Of this, $2.34 billion will be raised through a fully underwritten renounceable rights offer and a $400 million placement to bid partners AustralianSuper and Tawreed Investments, a wholly owned subsidiary of Abu Dhabi Investment Authority.
Following the deal, Transurban will emerge with 62.5 per cent of the road network, AustralianSuper will have 25 per cent and Tawreed will take the balance. The acquisition comes at a busy time for Transurban. The toll-road operator is also leading a consortium that has conditional approval to build a $3 billion tunnel link between Sydney's M2 and the Pacific Motorway.
In total, Transurban is expected to contribute up to $600 million of equity to the project to be called the NorthConnex motorway.
Transurban has a 50 per cent stake in Sydney's M5, the M7 and the M1 Eastern Distributor. It also owns the Hills Motorway. More recently, it acquired the operational rights to the Cross City Tunnel. Transurban also operates Melbourne's CityLink and several toll roads across the US.
Analysts said the Queensland deal, which is Transurban's first foray into the northern state, is pricey, but they gave it cautious backing.
Transurban beat out two rival international bidders to secure the deal. Mr Charlton believed Transurban's offer was only 1 per cent higher than the company's competitors. Legg Mason senior research analyst Andrew Chambers said while the acquisition was expensive, he expected it to ''look a lot better on multiples in a couple of years' time'' given the high-quality nature of the asset, its long-life nature and growth.
''Transurban have a very good record of chopping costs out of their past acquisitions in Sydney, so the extent of those synergies would be a key part of the analysis in this transaction,'' he said.
Mr Chambers said estimating cost savings was difficult, given the acquisition was Transurban's first in Queensland. He noted that when Transurban acquired Sydney's Lane Cove Tunnel, it was able to make considerable savings immediately because it owned roads in surrounding networks.
Morningstar analyst Adrian Atkins agreed the deal looked expensive, but it was an established asset.
''They have got a long average concession life, whereas some of Transurban's existing roads don't. These roads will keep their money coming in for a longer period, so even if the multiple looks high, if you've got it for 40 years instead of 20, it makes more sense.''
AustralianSuper head of infrastructure Jason Peasley said the price was ''consistent with previous toll-road transaction metrics''.
