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Despite being hit for six, the signs are good for APN Outdoor

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Despite being hit for six, the signs are good for APN Outdoor

APN Outdoor is a leader in outdoor advertising.  The company has over 50,000 high-impact sites in attention-grabbing locations across Australia and New Zealand.  But recently, like many other high-quality mid and small caps, its share price was severely smashed.  So, what’s going on, and is it time to snap up shares at these beaten-down prices?

Over the last year or two, a lack of growth in the banks (credit growth is expected to slow given maturing residential development as well as record mortgage and credit card debt) and resource companies has meant large institutional fund managers – those that focus generally, and by necessity, on the big cap stocks – fuelled a boom in the prices of smaller high-quality growth companies, as they migrated down the market capitalisation spectrum, looking to boost their returns.  High-quality, mid and small cap shares – with bright prospects and economics – benefitted.

More recently, the perceived prospects of the banks and resource companies have improved and those same institutions, finding themselves underweight, were forced to sell down their holdings in smaller, high quality growth companies to fund their purchases of the banks, BHP, RIO, et al.

As those large institutional funds unwound their positions over the last few months, we have witnessed corrections, if not crashes, in the share prices of smaller high-quality, high-growth companies.  ISentia has declined more than 30 per cent in the last month as has APN Outdoor and Vita Group.  Healthscope has fallen 32 per cent from a high of $3.14 to a low of $2.15, REA Group and Carsales are down 27 per cent and 28 per cent respectively from their highs.

APN Outdoor’s spectacular 35 per cent single-day loss is painful in the short term, and a reminder of the reality of investing in businesses listed on a stock market.  But where many see such volatility as risk, we see it as opportunity.  When the market treats that which is temporary as permanent, value investors ultimately thrive.

The Outdoor Media Association today reported net media revenue of $84.4 million for the month of November.  This represents an increase of 12.5% over the same month last year and November’s year-on-year growth rate was above the previous month’s 10.5 per cent print.

Importantly, of $709.5 million in year-to-date media revenue (up 15%) digital signs now represent just under 40 per cent of revenues, up from 28 per cent in the prior corresponding period.

As one of our friends, Ivor Rees at the stockbroker Morgan’s, noted, “the November growth rate would be consistent with the middle to top-end of APN Outdoor’s revenue growth guidance for FY17”.

Importantly, the OMA statistics only report industry media sales and do not count the revenues companies earn from production and installation of advertising media.

Based on the October and November data – and the fact that APN Outdoor will have a record number of digital screens in operation – Ivor Rees says he believes that December will be very strong for the company.

The Montgomery funds own shares in APN Outdoor.

Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merill Lynch.

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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking advice from a financial advisor if necessary.

4 Comments

  1. Outdoor advertising is very seasonal – December is always the best month (a pre-election month is a possible exception)

    Watch out for supply issues with this industry. Every advertising sign that goes digital has a 6-10 x increase in the number of paying customers. Just stand in front of a digital advertising screen and count the number of advertisers. In addition, the medium has poor accountability between ad spend and value delivered to the paying client. The thing I do like is its the last true broadcast medium.

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