Advertising is a rapidly shifting market, as consumers now have multiple avenues of consuming media – from free-to-air television, newspapers, radio, magazines, the internet, streaming media, mobile and desktop apps, to outdoor billboards, public transport in the form of the inside and outside of buses, ferries, trams and trains, gyms, offices, shopping malls, and sporting arenas to name but a few.
Two companies that are making their mark and taking advantage of rising popularity of outdoor billboards – many of which are becoming digital.
oOh!Media Ltd (ASX: OML) and APN Outdoor Group Ltd (ASX: APO) are both active advertising groups in this space.
oOh! Recently acquired Inlink Group and upgraded its full year 2015 guidance to pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) to between $57 and $58 million, up 17% over its prospectus forecasts, and 37% over the prior year. This is the second time the company has upgraded guidance.
oOh! currently has 2,800 digital screens across Australia's capital cities, reaching 2.2 million consumers each fortnight. Inlink will more than double that to 5,000+ digital screens. Not only that, but Inlink will also increase the company's wifi network to more than 900 locations. The next time you are in somewhere that provides free wi-fi, oOh! may well be the one serving you ads.
With a market cap of more than $600 million, oOh! is trading on a prospective P/E ratio of around 30x earnings, so isn't cheap. On the flipside though, revenues and earnings are growing at a fast clip.
APN Outdoor Group also recently upgraded its earnings guidance for EBITDA of between $68 and 69.5 million for the 2015 financial year (both APN and oOh! have December year ends). APO looks even more expensive than oOh! with a prospective P/E ratio of 38x, but EBITDA guidance suggests strong growth over the previous year of a tick over 50%.
Foolish takeaway
Both companies offer solid exposure to outdoor advertising across many formats and appear to have plenty of opportunities to grow revenues both organically and via acquisition. While their current share prices might appear expensive, their historical growth is nothing short of phenomenal. Of course, they will need to maintain that growth for the foreseeable future to justify those prices.
