Crash: APN Outdoor Group Ltd slammed on profit update

Credit: Alex Proimos

Shares in outdoor advertising business APN Outdoor Group Ltd (ASX: APO) plunged 33% this morning after the company revealed a net profit of $19.5 million on revenues of $150.6 million for the six-month period ending June 30 2016. The net profit and revenue are up 49% and 10% over the prior corresponding period.

The group’s net debt stands at $47.6 million, which is minimal given it just logged half-year EBITDA of $34.8 million. The primary driver of the cratering share price is a downgrade to expectations for full year earnings. They are now expected to now come in between $79 million to $84 million, compared to previous guidance for EBITDA between $84 million to $88 million.

The group blamed the downgrade on a weaker-than-expected September to November period, which it says is related to the extended federal election and effects of the Olympic Games. However, APN is getting lapped at the back of the race today with the company losing a third of its value despite the earnings downgrade being in the region of just 4%-5% using the midpoint of guidance.

The stock had more than doubled in value over the course of just the past year and today’s savage sell off shows how stocks can often be bid up far beyond their intrinsic value as momentum-driven buying propels share prices ever higher.

Elsewhere shares in digital advertising rival oOh!Media Ltd (ASX: OML) have fallen 16% in sympathy with APN Group’s falls. oOh! Media investors will now be nervous prior to its half-year profit report if APN’s downbeat update over outdoor advertising markets is anything to go by.

Billboards and transit remain APN’s largest outdoor advertising categories, although rail and airports are growing the fastest. The company still has a potentially long and profitable growth runway ahead of it and after today’s big price falls the shares are trading on a more realistic valuation.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

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The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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