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.
Figure 1. APO 1H17 result
- 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.
Figure 2. APO 1H17 result divisional split
- 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%.
- 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.
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
Figure 4. CGL’s growing government customer base