AE Portfolio Conservative Holding Transurban Group (ASX: TCL, OTC: TRAUF) reported solid operating and financial numbers for fiscal 2013, with underlying cash flow up 2.3 percent over the prior corresponding period to AUD443.3 million and statutory cash flow up 9.6 percent to AUD451.1 million.

Most remarkable about the toll road owner and operator is management’s forecast for a fiscal 2014 distribution of AUD0.34 per unit that will be 100 percent covered by cash flow. Fiscal 2013’s AUD0.31 distribution was 97 percent covered by cash flow.

Distributable cash for the year was AUD0.301 per share. Management had guided to distributable cash of “at least” 95 percent of the actual distribution.

Management reported proportional earnings before interest, taxation, depreciation and amortization (EBITDA) of AUD828 million, up 5.6 percent from the prior corresponding period. Transurban recorded statutory net profit after tax (NPAT) of AUD174.5 million, a 198.1 percent increase compared to fiscal 2012.

Proportional toll revenue continued to grow across the portfolio despite significant construction on key assets in Sydney, increasing 5 percent to AUD991.4 million. Transurban’s largest asset, CityLink, recorded a 6.5 percent increase in toll revenue compared to the prior corresponding period.

Management noted that the proportional toll revenue increase “largely reflects the toll price increases across the portfolio.”

As disclosed during Transurban’s presentation of half-year results, the company benefited from some of the development work during the period, with a “success fee” from the financial close of the I-95 project and the development of the tolling system for the 495 Express Lanes in Northern Virginia delivering revenue of AUD8.6 million and AUD31.2 million, respectively.

Total direct costs were up 12.6 percent to AUD316.3 million, largely driven by the new operating costs associated with the 495 Express Lanes and a number of one-off events, including the Express Lanes tolling and traffic management system development, which led to offsetting revenue.

On a like-for-like basis, taking out the 495 Express Lanes operating cost and the one-offs, costs were relatively flat year-on-year, with an increase of AUD6.5 million being the portion that management would describe as “ongoing costs comparable to prior period.” This component represents an increase of a little over 2 percent over fiscal 2012.

During the year Transurban made significant progress on a number of projects in the states of New South Wales and Victoria in Australia and on its US-based projects in Virginia.

In New South Wales the company neared completion of the upgrade of the Hills M2 toll road, which generates 14.5 percent of proportional toll revenue. This will have positive knock-on effects for Sydney’s north-west corridor, the Westlink M7 (10.6 percent of proportional toll revenue) and the Lane Cove Tunnel (6.2 percent of proportional toll revenue).

The upgrade includes the addition of 18 kilometers of new lanes, with Transurban anticipating an 8 percent rise at all toll points and a 22 percent increase at the main M2 toll plaza upon completion of the project.

The widening of the M5 West road was 40 percent done as of June 30, 2013, and on track for completion late calendar 2014. Traffic disruptions have been in line with management expectations.

Management has entered the third stage of negotiations with the New South Wales government on the F3-to-M2 tunnel project, with a financial close targeted for late in calendar 2014.

Transurban implemented full electronic tolling on the M5 road (9.5 percent of proportional toll revenue), while management noted further consolidation of operations and maintenance on Hills M2 and Lane Cove Tunnel, efforts that should reduce costs.

In Victoria Transurban implemented its GLIDe tolling system, which includes improved mobile and web access for customers and should support volume growth across its network.

Management continues to explore opportunities to improve its key CityLink road, which accounts for approximately 50 percent of overall proportional toll revenue, while its focus for Victoria is on relieving Western Link congestion points and furthering a proposed East-West Link project. The Victorian government has committed AUD294 million in its 2013 budget to project development.

In the US, Transurban completed delivery of the tolling and operations infrastructure for the 495 Express Lanes project for the Capitol Beltway in the Washington, DC, region.

Management noted that local authorities approved a speed limit increase from 55 to 65 miles per hour for the 495 Express Lanes and that the Virginia Dept of Transportation will fund a two- mile extension of the merge area of the northern terminus of the project, with an anticipated completion late 2014.

Both developments should help improve traffic flow and increase the utility of the project to commuters.

Construction on 95 Express Lanes project in Virginia is now 40 percent complete.

Although 495 Express Lanes traffic and revenue remain below project base-case expectations, management has noted encouraging trends. Average daily revenue for the fourth quarter of fiscal 2013 was USD45,270, up from USD27,499 in the second quarter, with record daily toll revenue of USD78,155 achieved on June 28, 2013.

The weekday average toll of USD1.95 in June marked a 60 percent increase over December 2012.

In late July Transurban’s share price took a one-day dive, as UBS AG (Switzerland: UBS, NYSE: UBS) announced that it was selling approximately 70.6 million shares on behalf of investors.

The block trade, equivalent to about 4.8 percent of the company’s outstanding shares, brought AUD6.76 per share, or a total of AUD477.3 million. The price represented a 3.2 percent discount to the stock’s closing price the day before the trade was made.

Transurban quickly recovered, jumping from a July 30, 2013, close of AUD6.75 to AUD7 by Aug. 6.

The share price is up more than 13 percent on the Australian Securities Exchange (ASX) in 2013, bettering the broad S&P/ASX 200 Index’s 10 percent appreciation. Transurban has generated a total return in local terms of 16 percent; accounting for the depreciation of the aussie the US dollar total return is 2 percent.

Transurban’s business is well-positioned for growth going forward, with major projects underway that will improve efficiency and drive toll revenue. The completion of the M2 upgrade will bring significant benefits to Sydney’s north-west corridor, including Transurban’s connecting roads the Lane Cove Tunnel and Westlink M7.

Management has noted increased traffic and revenue on the assets in that corridor in recent months, which provides the basis for its positive outlook for fiscal 2014. Traffic on its Australian assets was up 4.6 percent in July 2013, a good beginning for the current year.

Other major development projects in Australia and the US, including the widening of the M5 West road in Sydney and the 95 Express Lanes in Virginia, should further bolster results in coming years. And management continues to negotiate a final agreement on the F3-to-M2 tunnel project with the New South Wales Government.

All of this is reflected in the forecast annual distribution increase of 9.7 percent for fiscal 2014.

Transurban continues to generate consistent, dependable growth from its assets, for the past five years through some very difficult economic climates and with significant work going on. During this latter period the annual distribution has grown at a compound annual rate of more than 9 percent.

Transurban is a buy under USD6.50 on the Australian Securities Exchange (ASX) using the symbol TCL or on the US over-the-counter (OTC) market using the symbol TRAUF.

Transurban’s fiscal year runs from Jul. 1 to Jun. 30. The company reports full financial and operating results twice a year; it typically posts first-half results in early February, with full fiscal year numbers out in early August.

Transurban also reports traffic and revenue figures for its toll roads on a quarterly basis.

Interim dividends are usually declared in early December, with payment made in the second week of February. Final dividends are usually declared in late May or early June, with payment made in mid-August.

Transurban declared a final dividend in respect of fiscal 2013 of AUD0.155 on May 21, 2013.

This dividend, which was 3.3 percent higher than the final fiscal 2012 dividend, was paid Aug. 14 to shareholders of record on Jun. 28.

The most recent interim dividend of AUD0.155 per share was declared Dec. 4, 2012. It was paid Feb. 14, 2013, to shareholders of record as of Dec. 31, 2012. Shares traded “ex-dividend” on this declaration as of Dec. 21, 2012. The fiscal 2013 interim dividend was up 6.9 percent from the interim dividend paid for fiscal 2012.

Management will declare the interim dividend for fiscal 2014 on or about Dec. 9, 2013. Based on management’s guidance and past practice of paying two equal installments the interim dividend will be AUD0.17 per share.

Dividends paid by Transurban are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock seven rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology, while six rate it a “hold.” Three brokerages that cover Transurban rate the stock a “sell.”

The average 12-month target price among the 11 analysts that provide a figure is AUD6.83, with a high of AUD7.25 and a low of AUD5.85.