Outdoor media is growing fast: Should you buy oOh!Media Ltd and APN Outdoor Group Ltd?

Newly-listed oOh!Media Ltd (ASX:OML) is the market leader and set to grow revenue strongly in 2015.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published February 16, 2015 10:14 am AEDT

Outdoor media could be one of the best-performing advertising segments over the next 3 to 5 years if recent growth can be sustained. The sector has recorded:

8% compound average revenue growth in the four years to 2013, and
10% annual audience growth in the three years to mid-2014.

This is more than double the growth experienced in the fiercely competitive TV and radio advertising sectors.

Market Leaders

Newly-listed groups APN Outdoor Group Ltd (ASX: APO) and oOh!Media Ltd (ASX: OML) control approximately 60% of the local out-of-home advertising market, with competitors AdShel and then JCDecaux accounting for the rest. The sector includes outdoor billboards on buildings, bus stops, highways, park benches, and airports, among others.

Technological Revolution

APN and Ooh!Media are benefitting from greater scale, technical innovation and a growing audience for outdoor ads, which is more than can be said for companies like Fairfax Media Limited (ASX: FXJ), which are struggling to adapt to the changing newspaper and television markets.

Outdoor media is somewhat protected from the digital revolution, and in fact, the sector is benefitting from the innovations that improved technology is bringing. Ooh!Media, as the sector leader, has paved the way with digital billboards that can change advertising depending on the time of the day. For instance, McDonalds could advertise pancakes at breakfast time, coffee at 10am, burgers at lunch, and McCafe meals in the afternoon. This flexibility drives customer satisfaction and allows Ooh!Media to charge clients more while lowering employee costs.

Reasonable Price and Dividend Potential

Both companies trade on forward price to earnings ratios of around 15, which seems reasonable based on the structural competitive advantages that the groups have.

APN and Ooh!Media have established relationships with vendors, already control the prime advertising sites, can readily invest in new technology and functionality, and will likely be offered first right of refusal by existing customers to new sites.

These advantages are essentially exclusive to the outdoor media market and coupled with a growing market, APN and Ooh!Media are in a terrific position to be consistent and big dividend payers in the coming years.

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