Here’s why Transurban shares are this fund manager’s top holding


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The Transurban Group (ASX:TCL) The stock price rose 0.83% on Friday to end the session at $14.50.

Transurban joined the ASX this year, with its share price rising 4% in the first half of 2022.

But investors endured a tumultuous month in June.

Shares of Transurban fell from a closing price of $14.70 on June 3 to a low of $13.63 on June 16. Then they rose again to end the month flat – up 0.07%.

What do the experts think of the Transurban share price?

As my comrade Fool James reported today, Morgans has an extra note on Transurban. The broker’s 12-month stock price target is $14.42.

A number of other brokers have weighed in on Transurban’s short-term future. Some are positive, some are negative.

Asset management firm Cameron Harrison is on the safe side. Transurban is currently the largest holding in the company’s portfolio.

Why Transurban is our #1 stock pick

Partner David Clark is responsible for investment management at Cameron Harrison.

In an interview with the Australian Financial Review (AFR), Clark says Transurban is benefiting from rising inflation.

Clark said:

The toll road operator is a short-term beneficiary of the current cycles of inflation and economic reopening.

Transurban’s toll road concessions have very strong built-in inflation protection, with two-thirds of revenue tied to the rate of inflation and another quarter pegged at 4.25% (until 2029 ).

Concessions have an average lifespan of 30 years and toll rates cannot be reduced in the event of deflation.

This means that the current surge in inflation (and its subsequent fall to reasonable levels) will result in structurally higher revenues throughout the life of the concession.

Transurban has pricing power

Clark says Transurban’s pricing power is an advantage in today’s economy.

He explained:

When assessing the current inflationary environment, we look for companies that can exert pricing power in their markets, which can be used to mitigate rising input costs.

Pricing power comes in a variety of ways.

For example, companies that have a dominant position in the market can take advantage of it to set prices in the market (Bunnings/Wesfarmers Ltd (ASX:WES)), revenue that is primarily associated with essential expenses (health care or basic commodities/supermarkets), cash flow with built-in inflation escalation (toll road operators, such as Transurban) and/or are at the beginning of the supply chain (producers of industrial raw materials OZ Minerals Limited (ASX:OZL) and BHP Group Ltd. (ASX:BHP)).


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