QMS Prefers to Play Outdoors

By James Dunn | More Articles by James Dunn

Investors appear to like QMS’ growth strategy of developing its digital and static billboards in high-profile retail, transit (buses, rail and ferries) and airport sites across Australia, Bali and New Zealand, as well as its street media assets.

Outdoor advertising company QMS Media Limited (QMS) is one of those companies that had bad luck with its choice of days to list on the stock market – the company arrived on the Australian Securities Exchange (ASX) screens in June 2015 on one of the ASX’s worst days in recent years, a 2.5 per cent sell-off in reaction to global concerns that Greece was close to defaulting on its debt.

But in an outstanding debut, QMS Media shares defied the market’s fixation on the Greek debt crisis, gaining more than 9 per cent, up six cents on the issue price, to 71 cents.

And the stock was only getting started. QMS Media has subsequently motored to $1.30, capitalising it at $392 million.

QMS Media raised $90 million through its initial public offering, using the proceeds to fund acquisitions including QMS APAC Limited – one of Australia’s leading outdoor advertising assets –and the outdoor advertising assets of Paramount Outdoor, Octopus Media and Drive By Media amongst others. The company subsequently beat prospectus forecasts for revenue, and EBITDA (earnings before interest, tax, depreciation and amortisation) for FY15, but made a net loss – albeit a smaller one than forecast.

Investors appear to like QMS’ growth strategy of developing its digital and static billboards in high-profile retail, transit (buses, rail and ferries) and airport sites across Australia, Bali and New Zealand, as well as its street media assets.

When it floated QMS has 33 digital signs (29 in Australia, four in New Zealand) and 240 static billboards. In February the company said it would end the June 30 financial year with 48 digital billboards (36 in Australia, 12 in New Zealand), with a further seven landmark sites permitted for development.

Advertisers like digital signage because it can be updated at any time of the day, making it more relevant and current compared with static billboards. QMS is developing new digital billboards in high-profile metropolitan locations and also converting some of its long-established static billboards to digital.

The Australian assets are in Australia’s five major capital cities (plus the Gold Coast) and are large-format digital and static billboards located in what are considered premium sites, high-traffic locations on major traffic arterials and in suburban precincts that give, in the jargon of the outdoor advertising industry, “long dwell time.”

The digital medium allows advertising agencies to be highly creative. A great example is the campaign rolled out in July for Carlton & United Breweries’ Lazy Yak Pale Ale, which shows a yak on a lilo in a swimming pool. What the yak is doing changes according to the weather: QMS’ Digilab uses real-time local weather feeds, in Victoria, Western Australia and Queensland, sourced from the Bureau of Meteorology, to change the ad based on the temperature at each. For example, if the wind is 25 kilometres an hour or higher at any billboard location, the yak is shown being windswept across the pool. For the advertiser, this increases the engagement level of the campaign greatly.

In December QMS bought New Zealand outdoor media company, iSite Limited, from Infratil Limited, for $44.4 million. iSite is one of the two leading companies in the NZ outdoor advertising market, with a national footprint that includes four landmark digital billboards and 441 static billboards, as well as more than 1,500 buses and the Wellington and Queenstown airport concessions.

The company followed that in February with the acquisition of 51 per cent of Queensland-based ABsee (with an option for full purchase), which operates all of the Gold Coast City Council’s outdoor advertising assets, for $6.6 million (if full purchase is exercised.) ABSee has more than 700 street panels. QMS will convert up to 100 of the panels to digital platforms before the Gold Coast hosts the 2018 Commonwealth Games.

In May, QMS added to its Gold Coast presence with the installation of a new double-sided landmark digital billboard on Olsen Avenue, Southport, one of the city’s major north-south arterials, next to Griffith University and the newly developed Gold Coast University Hospital. Even better, the new site is positioned at the entrance to the upcoming 2018 Gold Coast Commonwealth Games Village. The billboard complements the existing digital billboard located on Cavill Avenue in the heart of Surfers Paradise.

QMS also has a strategic foothold in Indonesia, its Indonesian business (INsite Air Media) operates outdoor media assets in three of the four largest airports in Indonesia: Ngurah Rai International Airport in Bali; Soekarno-Hatta International Airport in Jakarta; and Kualanamu Airport in Medan. In 2015 QMS won a contract with the Bali airport to install 50 portrait digital screens and 21 light boxes throughout both the international and domestic terminals. It also has 22 landscape digital screens at the baggage carousels and three state-of-the-art video walls. This contract is the first airport digital network rolled out in Indonesia.

QMS was established in 2010 by Barclay Nettlefold, son of David Nettlefold, who pioneered the outdoor advertising industry in Australasia. Initially it was a joint venture with Qatar Media Services, which led to the acquisition and aggregation of several outdoor media and related companies to establish a footprint across Australia, New Zealand and Indonesia in 2012. Qatar Media Services exited the company in the 2015 initial public offering (IPO).

The company is a play on the move of the outdoor advertising industry to digital. Digital contributes about 40 per cent of revenue, and the company expects this to continue to grow as advertisers increasingly recognise the superior flexibility and engagement offered by the digital medium. In particular, the connectivity between mobile phones and digital billboards allows clients to amplify social media/mobile advertising campaigns, and deliver targeted consumer messaging and offers. PricewaterhouseCoopers forecasts advertising spending on outdoor media to increase to $856 million by 2019 with digital set to grow to 35 per cent of spending. In 2015 the Australian and New Zealand outdoor advertising markets grew by 17 per cent and 12 per cent respectively.

QMS reported a first-half net profit of $5.7 million. The company does not have a previous corresponding period having registered the business in November 2014 and beginning operations in March 2015 before listing in June. Revenue for the half-year was $44.4 million.

QMS says it is well placed to deliver revenue and earnings in the second half that are higher than in its first half. It will have full-year contributions from landmark digital billboards delivered in FY15, partial contribution from sites delivered in FY16 – 48 digital billboards to be operational – as well as partial contribution from the New Zealand acquisitions and the Bali Airport and Auckland Transport concessions.

Growth in FY17 will come from the seven landmark digital sites already permitted for construction in the first-half, and full-year contributions from iSite and ABsee and the digital sites delivered in FY16.

According to Thomson Reuters, analysts expect QMS Media to report earnings per share (EPS) of 5.9 cents for the 2015-16 financial year (FY16), with a second-half dividend of 1.2 cents. These expectations rise in FY17 to EPS of 7.7 cents and full-year dividend of 2.5 cents.

At $1.31, that prices QMS Media on 22.2 times expected FY16 earnings, which could be argued is on the pricey side. But the analysts who follow QMS Media believe the stock has a bit of gas left in the tank: their consensus target price is $1.525, or 16 per cent north of here. Further out, QMS Media’s careful expansion should pay growth dividends. Float subscribers have done very well out of this stock, but it’s not too late to get on board.

James Dunn

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au.

View more articles by James Dunn →