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Seven stocks that performed in reporting season

Stocks, trade market, forecasts values

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As the dust settles on another reporting season, we examine seven strong performers that are still trading below their future forecast values.

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APN Outdoor

APO reported very strong growth in its core Billboards division and negative comps in its other divisions. The result was in line with market expectations.

Financial highlights:

Figure 1. APO 1H17 result
Source: APO

  • Overall, revenue growth at 8% was solid with some benefit from acquisitions made in 2016 (not disclosed how much, could be as high as 3-4%)
  • Margin contraction was surprising but operating costs should decelerate in 2018 and EBITDA margins should then improve
  • Higher depreciation due to higher capital expenditure from the rollout of digital. Debt on the balance sheet has also risen to fund this rollout.

Divisional split:

Figure 2. APO 1H17 result divisional split
Source: APO

  • Billboards were clearly the standout at +20%, benefiting from continued digital rollout and very strong market growth in New Zealand (+28.6%)
  • Transit continues to lose incremental market share to street furniture (Adshel) and billboards but is consuming very little capex and is still earning an adequate return
  • Rail was down 10% - this appears to be a timing matter
  • Classic holding revenue was a positive. If sustained this would exceed expectations
  • Digital was the clear driver, with a 3-5x revenue uplift per conversion driving very strong revenue growth of 27%.

Investment View:

  • This was a mixed result with billboards very strong but other divisions were much weaker
  • There is margin upside over the next 12-18 months as APO cycles the step change in costs
  • Yields (revenue per board) are holding according to management, which is positive given the extra inventory placed on the market over the last 12 months
  • Risks remain over contract renewals over the next six months but APO remains in a good position to renew all major contracts. Upside if APO wins entirety of Yarra Trams (currently 50/50 with Adshel)
  • Transit expected to return to growth in 3Q
  • EBITDA guidance of $90-95m is in line with our existing estimates
  • With a forward valuation of $5.73 the stock remains a hold.


Citadel Group

CGL delivered a strong 2H to drive a FY17 result above expectations on all key metrics. We have a preliminary forward valuation of $5.88, which compares to the current market price below $5.50, so we will hold.

Key details from the result:

  • Group revenue up 28% to $98.8m
  • Group EBITDA up 48% to $30.1m. EBITDA margin expansion of ~3ppts to 30.5%
  • Group NPAT up 81% to $15.4m
  • Operating cash flow of $24.9m, with 2H cash generation a standout given 1H OCF of $0.5m
  • Net cash of $20.9m – strong balance sheet
  • Final dividend of eight cents well ahead of expectations for 5-6 cents
  • All key contracts for Technology locked in for 2018, with no renewals due until FY19; this underwrites another positive year ahead. FY18 will benefit from a full period of contribution from new contracts won in FY17. To date CGL has never lost a contract
  • The FY18 PER at current prices of 16.1 times is not demanding
  • Expansion of customer base: CGL retains its strong core government customer base, particularly in defence. The customer base is expanding to include health, utilities, police, local government and education with universities a significant opportunity.

Slides of interest from the presentation:

Figure 3. CGL major contract timing
Source: CGL

Figure 4. CGL’s growing government customer base
Source: CGL