This is the second article of two articles aiming to identify which of APN Outdoor Group Ltd (ASX: APO), oOh!Media Ltd (ASX: OML) and QMS Media Ltd (ASX: QMS) is Australia's best outdoor advertising stock.
Market positions & strategies continued…
New Zealand is behind Australia in terms of changing over to digital media and this is part of the reason that QMS recently bought iSite, one of the top two outdoor advertising firms in New Zealand. The deal also makes sense because QMS recently won a large contract to manage outdoor advertising assets for Auckland Transport and iSite is already active in the Auckland transit market.
oOh!Media is focused on advertising that is close to the point of sale and in places where people remain for a substantial amount of time. Retail precincts, airports, cafés, bars and gyms all fit the bill and also offer the possibility to use Wi-Fi enabled signs. The company is investing heavily in both online and offline advertising delivery and acquired online content and publishing company, Junkee Media, for $13 million in June 2016.
The management of oOh!Media believes that national coverage is important for attracting international advertisers which might explain why the company owns assets in both metropolitan and regional locations. Meanwhile, APN's business is concentrated in the cities and the company has made four acquisitions in the last 12 months. It is buying up attractively positioned sites and then upgrading them to digital billboards to realise their full value.
Financials & valuations
APN and oOh!Media both have financial years that end on 31 December, but QMS's financial year ends on 30 June. As QMS was only formed on listing in 2015, there are no comparison figures for its results for the first half of 2016.
APN delivered revenue of $300.8 million in 2015, up 20% on the prior year whereas oOh!Media recorded growth of just 7.3% to $279.8 million. The APN result was assisted by a number of acquisitions made in the second half of 2015, but these would have only contributed a few million dollars in revenue at most.
APN's earnings before interest, tax, depreciation and amortisation margin (EBITDA%) was 24.4% in 2015, up from 18.1% in the prior year. This is better than oOh!Media which managed 20.6% in 2015, up from 16.1% in 2014 and slightly ahead of QMS which delivered an underlying EBITDA% of 24.1% for the first half of 2016. The QMS result is likely to fall in the second half of the year given sales are generally stronger in the lead up to Christmas.
At 31 December 2015 APN had net debt of $56.9 million, oOh!Media had $86.2 million of net debt and QMS had $13.3 million in cash and no debt. These debt levels are comfortable given APN generated $73.3 million and oOh!Media delivered $57.7 million of EBITDA in 2015.
APN has an enterprise value-to-EBITDA multiple (EV/EBITDA) of 15.9 based on 2016 guidance compared to 12.9 for oOh!Media. I estimated that QMS is trading on an EV/EBITDA of 14.2 based on its result for the first half of 2016 and an annualised contribution from iSite.
Verdict
Personally, I think that all three of these businesses look a little pricey given their high exposure to the business cycle. However, the long-term prospects of the outdoor advertising industry are positive and so all three companies have the potential to perform well over time.
QMS is the smallest and has the most fragmented service offering and so is a higher risk proposition than APN or oOh!Media which both dominate their respective segments. oOh!Media is the leader in retail which is the fastest growing out of home advertising format and I like management's strategy of strengthening the company's online capabilities.
The more that oOh!Media develops its interactive advertising products, the harder it will be for competitors to enter the market. It is also the cheapest and so is my pick of the three businesses.
