Morningstar | APN Outdoor Brings Home a Good Report Card for Soon-to-Be French Parent. See Updated Analyst Note from 26 Aug 2018
APN Outdoor's fiscal 2018 first-half result was overshadowed by the Australian Competition and Consumer Commission's, or ACCC's, clearance for JCDecaux to acquire the group. It is a decision that we expected and is why we raised our fair value estimate for APN in June 2018, to JCDecaux's AUD 6.70 per share offer. With this all-cash consideration coming their way, shareholders in the no-moat-rated group could be forgiven for treating the June-half result with indifference.However, the soon-to-be 100% shareholder, JCDecaux, would have been pleased with APN's 7% rise in first-half underlying EBITDA to AUD 40 million. The growth would have been 15% to 16% had APN not lost the Yarra Trams concession in December 2017 to, of all people, JCDecaux. The French suitor may have been a little disappointed by the mere 10% lift in APN's first-half billboard sales to AUD 93 million (55% of group revenue), compared with market growth of 16%. But such near-term revenue volatility is no cause for concern, and compensated by the more-than-doubling in first-half free cash flow to AUD 22 million.
JCDecaux would also have been encouraged by APN's recent string of concession wins, including the retention and expansion of the Sydney and Queenstown Airport contracts. This means only 3% and 6% of APN's revenue are subject to renewal risks in fiscal 2018 and 2019, respectively. While we may never find out how much margin APN sacrificed to win these contracts, that is no longer something APN shareholders need to fret about, given the AUD 6.70 per share cash coming their way.
As for the ACCC clearance, the regulator sensibly recognised that APN has little presence in the street furniture segment of the outdoor market that JCDecaux operates in Australia. It may have also saw little justification in getting in the way of old media consolidation, even within a subsegment such as outdoor, in the face of indiscriminate competition for eyeballs and advertising dollars from digital behemoths.
APN Outdoor Group Limited is an Australia-based provider of advertising services. The Company operates in the Out-of-Home advertising market segment. The Company supplies Out-of-Home media and advertising services at sites in Australia and New Zealand. It offers digital billboards, static roadside billboards, transit advertising, rail advertising and airport advertising. It has a geographically diversified outdoor advertising network, which operates in New South Wales, Victoria, Queensland, Western Australia, South Australia, the Australian Capital Territory, Tasmania and New Zealand.
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