This report has been prepared to evaluate the performance and the valuation of Transurban Group (TCL). For this process, various business finance tool has been measured. The main objective of this report is to evaluate the position of the company in the market and the investment opportunity, risk and the return from the company.
The company is operating its business since 1996. The company manages and operates its business in developing the urban toll roads. The main network of the business in is North America and Australia. The company has registered its securities in the Australian stock exchange. The company is one of the largest companies of Australian market and according to the ASX, it falls into the category of top 20 companies of Australian market. Current 1500 people are employed by the company and the turnover of the company is quite impressive (About us, 2018).
Ownership structure of the company is as follows:
Main Substantial stakeholders:
Annual report of the company explains that there is only one shareholders of the company who has more than 20% stock of the company. The stockholder is a company and it does not have any direct connection with the company and the members of the company.
Further, it has been evaluated that there are 4 stockholders who has more than 5% stocks of the company. Further, the rest top 16 stockholder of the company has less than 5% stock of the company.
Following is the study of few ratios which would describe about the performance position of the company:
Return on assets (ROA) of the company would explain about the total profit which has been calculated against the total profit of the company. It is 0.9% which is quite lower.
|
Return on assets= |
NPAT/ total Assets |
|
209000000/23323000000 |
|
|
0.90% |
Return on equity (ROE) of the company would explain about the total profit which has been calculated against the total equity of the company. It is 4.65% which is quite moderate.
Return on equity:
|
Return on Equity= |
Net profit after tax/ ordinary equity |
|
209000000/4495000000 |
|
|
4.65% |
Debt ratios:
Debt ratio of the company would explain about the total liability which has been maintained against the total assets of the company. It is 36.82 % which explains about the 36.82% debt of the company.
|
Debt Ratios = |
Total Liabilities/ total assets |
|
66256/179939 |
|
|
36.82% |
(Annual Report, 2018)
|
EBIT / TA * NPAT / EBIT * TA/ OE = NPAT / OE |
|
|
(923000000/23323000000)*(209000000/923000000)*(23323000000/4495000000)= |
209000000/4495000000 |
|
4.65% |
4.65% |
(Morningstar, 2018)
Further, the phenomenon total assets and total equity explains about the impact on the profitability position and the ROA and ROE ratio of the company. It explains that the few changes into the assets and equity would largely impact on ROA and ROE of the company. The higher assets and equity level would lower the ROA and ROE of the company.
Further, Roe of a company would always be greater than the ROA of the company because assets of an organization could not be higher than the equity of the company. If the equity would be raised by the company than the total assets of the company would be higher and thus the ROE is always greater.
Figure 2 explains that the stock price of TCL is quite lower than the stock price of AORD. The correlation of both the stock is 0.66 which explains that the movement in the stock price of the company is almost similar. The prices of TCL impact on the AORD prices.
The reports, news and fianncial analyst report epxlains about the stock price of the company and the reasons due to which the stock price of the company has been lower. The stock price of the company has been lowered due to various factors. Such as, on 30-6-2016, the stock price of the company has enjoyed a growth of 6.96% due to macro economical factor changes (FT, 2018). Further, 8.14% increment has been enhjoyed by the compay on 31-1-2017 due to industry factors (AFR, 2018). Further, the deduction on 31-5-2017 is due to Law suit failure and on 31-8-2017, stock price haas been chnaged due to internal changes into the company (Bloomberg, 2018). The chnages into the stock price has taken place on 30-11-2017 due to economical factors (Yahoo finance, 2018).
Beta of the company has been calculated on the basis of stock price which is 0.71.
Required rate of return:
Cost of equity of the company is 5.44%.
|
Calculation of cost of equity (CAPM) |
|
|
RF |
4.00% |
|
RM |
6.00% |
|
Beta |
0.718 |
|
Required rate of return |
5.44% |
(Morningstar, 2018)
The risk of the company’s stock is 0.67 and the return of the company is 5.44% which explains that the company is a conservative company as the risk of the company is lower and return is higher
WACC calculations:
|
Calculation of WACC |
||||
|
Price |
Cost |
Weight |
WACC |
|
|
Debt |
13,74,80,00,000 |
3.50% |
0.90459 |
0.03166 |
|
Equity |
1,45,00,00,000 |
5.44% |
0.09541 |
0.00519 |
|
15,19,80,00,000 |
Kd |
3.68% |
(Morningstar, 2018)
Working Note:
|
Calculation of cost of debt |
|
|
Outstanding debt |
13,74,80,00,000 |
|
interest rate |
5.00% |
|
Tax rate |
30.0% |
|
Kd |
3.50% |
|
Calculation of cost of equity (CAPM) |
|
|
RF |
4.00% |
|
RM |
6.00% |
|
Beta |
71.81% |
|
Required rate of return |
5.44% |
Implication on WACC:
The WACC rate of the company is 3.68% which is quite lower and it expresses about the investment implication of the company. It depicts that the company should chose the investment proposal on the basis of cost of capital of the company. Return must be higher than WACC.
Capitals structure of the company should be lower. But the calculations express that the company has increased the liabilities and due to which the capital structure of the company has been worst.
|
2017 |
2016 |
|
|
Debt Ratios = |
Total Liabilities/ total assets |
Total Liabilities/ total assets |
|
18828000000/23323000000 |
17995000000/23030000000 |
|
|
80.73% |
78.14% |
Gearing ratios:
Gearing ratio calculations of the company explain that the company has reduced the bowings and due to which the gearing ratio of the company has been lowered.
|
2017 |
2016 |
|
|
Gearing ratios = |
Total Liabilities/ Capital employed |
Total Liabilities/ Capital employed |
|
66256/(179939-37504) |
66897/(178261-38110) |
|
|
46.52% |
47.73% |
Further, the company has announced a good amount of dividend to its stockholders and from last few years, good dividend amount is given by the company to its stockholders. It explains that the company is following relevant dividend policy, it explains that the position of the company could be improved only if the company pays a god dividend amount to its shareholders (Annual Report, 2018).
Recommendation and Conclusion:
To,
Client.
Subject: Recommendation about investment
Date: 31 Jan 2018.
Dear,
This letter is to inform you about your query regarding the investment in TRANSURBAN GROUP Company. Through this research paper, it has been evaluated that the performance and the position of TRANSURBAN GROUP (TCL) is better. The risk and return of the company is also good. Thus, this company is one of the best companies to make an investment.
You are recommended to make an investment into this company for better returns.
References:
About us. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://www.transurban.com/
AFR. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://www.afr.com/street-talk/brokers-launch-156m-transurban-group-shortfall-auction-20180128-h0pqs9
Annual report. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://www.transurban.com/content/dam/investor-centre/04/2017-Annual-Report.pdf
Bloomberg. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://www.bloomberg.com/quote/TCL:AU
TRANSURBAN GROUP. viewed Jan 31, 2018, https://markets.ft.com/data/equities/tearsheet/forecasts?s=TCL:ASX
Reuters. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://www.reuters.com/finance/stocks/overview/TCL.AX
Morningstar. 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://financials.morningstar.com/cash-flow/cf.html?t=TCL®ion=aus&culture=en-US&platform=sal
Yahoo Finance, 2018. TRANSURBAN GROUP. viewed Jan 31, 2018, https://finance.yahoo.com/quote/TCL.AX/history?period1=1451586600&period2=1514658600&interval=1mo&filter=history&frequency=1mo
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