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Transurban Group (ASX:TCL) shares rise on quarterly update and broker buy rating

James Mickleboro

One share that has managed to miss out on the market rout today has been Transurban Group (ASX: TCL).

In late trade the toll road giant’s shares are actually up 0.5% to $11.00.

Why are Transurban’s shares pushing higher?

While some of today’s gain could be down to its defensive characteristics, the company also released its quarterly update this morning ahead of its annual general meeting.

During the September quarter Transurban experienced a 3.3% increase in Average Daily Traffic (ADT), thanks to growth across all markets.

One catalyst for this growth was the performance of its Sydney-based roads. Transurban saw a 2.5% increase in Sydney ADT to 681,000 trips. Average workday traffic increased by 2.8% and average weekend/public holiday traffic increased by 1.5% during the quarter.

Traffic data for WestConnex, which currently comprises M4 West, is not included in the Sydney ADT in this release.

Its Melbourne-based roads performed even stronger. Melbourne ADT increased by 5.5% to 854,000 transactions during the quarter. Average workday traffic increased by 5.4% and average weekend/public holiday traffic increased by 5.9%.

The same couldn’t be said for its Brisbane-based roads, though. Brisbane ADT increased just 0.6% to 414,000 trips during the September quarter. Although average workday traffic increased by 1.4%, average weekend/public holiday traffic decreased by 2.3% due to construction activity on the Logan Motorway.

It was a similar story in Greater Washington where Transurban’s business was disrupted by Hurricane Florence. During the quarter Greater Washington Area ADT decreased by 0.7% to 98,000 trips. Fortunately, this was offset by a 7.5% increase in Montreal ADT to 51,000 trips.

Should you invest?

Overall, I thought this was a reasonably positive quarter for Transurban and I’m not alone in thinking this.

According to a note out of Goldman Sachs, it has retained its buy rating and $12.58 price target on Transurban’s shares following the release.

Although traffic volumes were lower than its annual growth expectations, it was pleased with the performance of its Sydney roads. In addition to this, it remains positive on the company on the belief that the WestConnex addition underpins its dividend outlook.

While I’m not a buyer of its shares as I’m avoiding bond proxies due to rising bond yields, Goldman appears to see it as a great option for income investors.

This could make it worth a look along with fellow dividend shares Sydney Airport Holdings Pty Ltd (ASX: SYD) and Australia and New Zealand Banking Group (ASX: ANZ). Both are also rated as buys by Goldman Sachs.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.