Poster performance
Strong performance from the new Digital segment helped drive group revenues up 19% in Q114 over the prior period, despite the strong local organic performance in Turkey being more than wiped out by currency. Digital now accounts for 15% of group revenues. With the early refinancing successfully renegotiated last month on more favourable terms, borrowing costs will be significantly reduced and management has demonstrated its confidence by proposing dividend payments ahead of schedule. The group’s shares trade at a considerable discount to other international out-of-home operators despite being at the higher end of peer EBITDA growth.
Good start to year and momentum into Q214
CBS Outdoor’s March IPO prospectus stated: “We believe that out-of-home advertising is an attractive form of advertising as our displays are (always on) and cannot be turned off, skipped or fast-forwarded, and that it provides our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising.” This applies equally to Stroeer Out of Home Media AG (XETRA:SAXG) and its German, Turkish and Polish assets, with advertisers naturally gravitating to suppliers with the best-quality estate. German advertising market growth is currently forecast by Zenith Optimedia at 1.5% for FY14 and Stroeer’s 2% growth in Q114 is clearly good in this context. Turkish revenue growth of 10.1% was heavily affected by currency, with reported revenues in € down 14%. Turkey delivered an EBITDA profit against a loss in Q113.
Strong forecast FY14 profit growth
Organic growth of mid- to high single digits will be supplemented by last year’s acquisitions to give Q214 revenue growth of 10-15%, with market forecasts currently just shy of 10% growth for the year. With Turkey now profitable, a greater contribution from high-margin digital activities and lower finance costs, the profit performance should be stronger still.
Valuation: 33% EV/EBITDA discount to larger peers
Despite the positive share price reaction to the Q114 statement, the shares remain at a heavy pricing discount to large international peers. Some of this can be attributed to size; some reflects lack of market familiarity with the investment case; and some is attributable to earlier concerns over the balance sheet, now addressed. A 33% current year EV/EBITDA discount is excessive, given the proven appetite for both the CBS Outdoor IPO and for Stroeer’s oversubscribed refinancing.
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