Steady as she goes for Transurban, even with a new CEO on the way

The result was solid, and the outlook is good. The CEO's changing but, importantly, the successful strategy that Scott's [outgoing CEO] put in place is unchanged, so that's quite important going forward.

I think it's probably about right, it's in line with the market as a whole. So, it was a solid result, basically in line with expectations. Trading in line with the market is probably fair.

So, there's a CEO announcement, I wouldn't call it a surprise they were going to make the announcement at this result. Michelle was the leading candidate. The only surprise was the fact that we haven't had an internal candidate before. 

I think that the board's been very good at grooming a bunch of internal candidates over the past four or five years, as Scott has kept pushing out his retirement. 

So, they've had plenty of time to work on an internal candidate. It's good to see that happening.

From a traffic point of view, I think traffic is probably a bit weaker in Sydney than I would have expected and there are some roadworks impacting that and people moving back to public transport. 

Overall, the numbers were broadly in line [with expectations] across the portfolio. In the US they shot lights out, Brisbane is strong.

It's still one of our biggest positions and I think that nothing in this result is going to change that, it's still a very solid underlying business, very low risk, with traffic continuing to recover. There is also a lot of option value that is starting to materialise, through things such as the M7 widening [in Sydney].

What’s your outlook on TCL and its sector over the year ahead? Are there any risks that investors should be aware of?

For TCL, we're obviously very positive on it and it continues to see good inflation pass-through and good traffic recovery.

The inherent option value in things like the M7 is good but there are $10 billion dollars of potential projects in the next five years that they could bring to market. So, huge option value in there.

A lot of those are uncontested, in so far as no one else can widen a road that you own, so there are very low-risk type expansion projects there.

The key risk is probably around interest rates. I think we've probably peaked, or we're near peak, but to the extent you see interest rates jump, historically, we see what we call a "sticker shock effect," where long-duration stocks tend to get hit. This kind of ignores, a little bit, the fact that TCL actually benefits from short-term inflation spikes, which they talked about.

The cost of debt has barely moved, it's gone from 3.9% to 4.1% over the year, yet revenues have gone up, on average, around 7% off the back of toll increases linked to inflation, so you actually benefit from that. So, there are reflexive downgrades you get to see when you see interest rates increase, which probably isn't fair but that's a buying opportunity for us. But it does tend to create volatility risk in the stock. 

As for the sector as a whole, there are three companies that we look at, or we consider to be infrastructure in Australia - APA Group (ASX: APA), Atlas Arteria (ASX: ALX), and Transurban. The sector as a whole looks cheap, as we see it.

From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing on the ASX right now? Are you excited or are you cautious about the market in general?