The APN Outdoor Group Ltd (ASX: APO) share price jumped 7% to $5.04 this morning, after the company released its annual results for 2017. Here's what you need to know:
- Revenue rose 8% to $162 million
- Net profit after tax (NPAT) fell 19% to $16 million
- Underlying profit rose slightly to $19.9 million
- Underlying earnings per share up slightly to 12.7 cents
- Interim dividend up 3% to 6.7 cents per share
- Net debt rose from $84 million to $96 million
- Key contracts renewed and ongoing expansion of out of home marketing, but whole of market growth is moderating
- Outlook for continued investment in growth, with $30 million of capital expenditure in 2017
- Forecast for underlying EBITDA to be $90 million to $95 million for full year
So what?
A reasonable result for APN, with the company reporting strong revenue growth even as its statutory results were marred by one-off costs by the recent failed merger with oOh!Media Ltd (ASX: OML). Market advertising growth in Australia has slowed right down due to the influx of new advertisers, although the shift to digital is just beginning.
Importantly, APO has maintained the margins (i.e., advertising revenues minus rent + electricity) of its displays, suggesting that the profitability of the company's revenues has not been impacted by increasing competition. The recent re-signing of major contracts such as Adelaide and Sydney buses suggests that the arrangement remains a win-win for both parties.
Additionally, APN is investing heavily in growth with several new hires announced and significant capital expenditure over the full year.
Now what?
Priced at around 19x its full-year estimated earnings, APN Outdoor does not look overly expensive, especially when compared to plenty of larger companies priced on a similar multiple. With manageable debt and several identified ways to generate growth in the future, APN Outdoor could be a long-term winner.
It will be important not to overpay for APO shares, especially with increasing competition and the maturity of the Australian market. Still, the company is in a good position and could prove a nice earner over time for patient shareholders.
