Billboard advertising has become seemingly ubiquitous these days. Although we typically think of billboards as the giant distractions erected alongside freeways, shrewd media companies are now transforming all sorts of public spaces into advertising.
For companies operating in this sector, digital media is also offering lucrative possibilities outside of traditional poster advertising.
But despite generating strong revenue growth many of Australia's leading outdoor advertising companies aren't generating the sort of market excitement they would like. I'm going to look at three of the major companies in this underappreciated sector to see if they might actually offer some decent value at their current share prices.
Advertising and billboard company APN Outdoor Group Ltd (ASX: APO) grew its revenues by 4% to $342.9 million for the year ended 31 December 2017. The growth was driven primarily by its digital business where revenues were up 13%, while sales from more traditional channels remained relatively flat on the prior year.
Statutory NPAT was down 9% to $44 million for the year, but after adjusting for one-off items underlying net profit after tax and amortisation (NPATA) was up 2% to $53 million.
Although this result came in at the lower level of its annual profit guidance, underlying growth combined with a healthy balance sheet still gave management enough confidence to increase the full year dividend to 19.2 cents fully franked, up from 19 cents on FY16. This gives APN stock an attractive dividend yield of 4.3%.
APN's share price hasn't performed as well as investors would have hoped over the last 12 months, and new CEO James Warburton, who was appointed to the position in January, will hope to reverse this trend in 2018.
Since this time last year, the share price has shed about 20% of its value, and Warburton acknowledged that the company hadn't done enough to keep pace with its rivals. However, the new CEO flagged a much more aggressive strategy for FY18. After successfully renewing a number of its key existing contracts with the likes of Sydney Buses, Tullamarine Freeway and Metro Trains Melbourne, Warburton recently told Fairfax Media that it was now time for APN to "go after [its] competitors' contracts".
One of those competitors is billboard advertising company oOh!Media Ltd (ASX: OML). It had a particularly strong FY17, growing its annual revenues to 31 December 2017 by 13.1% to $380.3 million. Statutory NPAT was up 35.5% to $33.1 million, while underlying NPATA was $47.2 million. Its full year 2017 dividend was 15 cents per share fully franked, which represented an increase of 7.1% on the prior year.
oOh!Media has also cleverly managed its lease maturity profile, giving investors increased faith in its earnings potential. As at the date of its annual report, a cumulative 65.5% of its revenues came from contracts that had at least 3 years left until expiry.
The chart of oOh!Media's share price over the last 12 months displays the type of choppy volatility that might make some shareholders nervous, but it has still delivered a far superior return than APN. Since hitting a 52-week low of $3.86 back in July 2017, OML's share price has rebounded more than 19% to $4.60.
Another billboard advertising company worth including in the mix is QMS Media Ltd (ASX: QMS). While noticeably smaller in terms of revenue generation than either APN or OML, QMS is the leading outdoor media company operating in New Zealand.
It reports on a different schedule to its two peers, with its first half FY18 ending 31 December 2017. Its revenues increased 25% on 1H17 to $99 million, while statutory NPAT was up 11% to $8.3 million. Its shares have underperformed over the last 12 months, sliding almost 10% lower since this time last year. Full year guidance is for EBITDA of between $44 million and $46 million, which would represent solid growth of at least 21% on FY17 EBITDA of $36.2 million.
Foolish takeaway
My pick of these three companies is oOh!Media, as it seems to be the only one with any real momentum behind its share price. I also think it is the company that has delivered the strongest financial results.
APN is in a healthy financial position, but lagged well behind both oOh!Media and QMS in terms of revenue growth. However if new CEO James Warburton can follow through on his tough talk it could be an interesting year ahead for both APN and the broader sector.
