APN Outdoor (APO) looks to have continued long-term growth. Outdoor advertising spend continues to increase, with a ten-year annual growth rate of 6.7%, against just 2% for ad spend overall. Australian outdoor advertising is 5.6% of ad spend, behind the global average of 7.5%. Last year saw a particularly strong 17% growth in outdoor ad spend, with this growth continuing into 2016. APO is continuing to improve on its 30% market share in Australia and New Zealand. Outdoor is emerging as a strong alternative to newspaper and magazine advertising, as these traditional methods rapidly lose readers. With more Australians settling in metropolitan areas congestion has also increased, resulting in more eyeballs for outdoor advertising.
Digitising their inventory also continues to provide significant benefits going forward and involves converting static billboards to digital screens able to display more inventory with more flexibility. Payback periods range from 18 months to three years with revenue uplifts of 4 times and EBITDA uplifts of close to 8 times for a given conversion. For the second half of 2015 APO had only 26% of revenue sourced through digital, though this is increasing quickly.
EBITDA is forecast to continue growing faster than revenue, with margins continuing to improve. Digitisation continues to be the primary driver for an EPS growth rate in the mid-teens over the next few years. While the stock has risen from $3 in August to $6.50 now the valuation still appears reasonable in the context of strong growth.
(Alex Shevelev, Portfolio Manager)