Australian advertising’s diamond in the rough

Market insights

As many of you will recall, the Australian advertising market was once extremely attractive. Strong growth, capital light businesses, innovation, glamour and soaring share prices… it seemed to have it all. Today, however, investors commonly view the ad market as a space to avoid. Subsequently many traditional media companies share prices are at all-time lows.

As bottom-up investors, we try to avoid forming broad brush conclusions and instead look at every company on an individual basis. Focusing on the 2 or 3 things that matter we’ve identified a potential opportunity… a diamond in the rough.

The background

The Australian advertising market has enjoyed strong growth over a long period of time. It has delivered a compound growth rate of 8% p.a over the past 40 years to reach its current size of $13 billion1. However, it hasn’t been a smooth ride with the market experiencing good and bad times.

It's all digital, darling

The big growth story in advertising is the shift from newspapers to the online channel. Online is generally a lower cost medium to reach audiences – and so advertisers can spend less to achieve the same outcome (at least in terms of how many people they reach). The online channel has grown rapidly over its short life, becoming the single largest advertising medium in 2014.

Australian advertising market share - major categories

Source: CEASA and Macquarie, July 2015

I don't want my MTV

Much of this growth has come at the expense of the newspapers and it looks as though TV advertising will be next. Given the listed media sector has historically been dominated by TV companies (Channel 9, 10 and 7), it’s this gloomy outlook that appears to be weighing on investor sentiment.

What matters?

Looking through the gloom, we’ve identified one advertising medium that is showing no signs of a slowdown. It’s 'out of home' or 'outdoor'. It includes advertising on roadside billboards, train stations, airports, bus sides, bus stops and in shopping malls, among others. The attraction is that it is omnipresent – so it can reach audiences when the other mediums don’t. This is increasingly valuable as traditional audience’s fragment. In fact, outdoors recent strong growth can be partly attributable to the fact that it too is migrating to a “digital” medium, with billboards often being large TV screens.

The outdoor segment is still relatively under-developed. With $600 million of annual spend, it represents less than 5% of the total ad market. However it has plenty of room to grow – especially compared to what has been achieved by outdoor in many developed markets around the world.

Billboards and digital displays

oOh! Media (OML) is Australia’s largest outdoor ad company. Established in 1998 by current CEO Brendon Cook, it has grown rapidly over the years and now holds 34% market share2. It has a broad collection of sites nationally, as well as a strong pipeline of digital conversions planned. This, in combination with increasing advertiser attraction to outdoor, reinforces our conviction in the story.

Summary

The bottom line is that we aren’t optimistic about the outlook for the overall Australian ad market. In fact we believe a period of low growth is likely to occur. We are, however, confident in the solid growth outlook for the outdoor ad market.

 

Related solutions

Managed funds

Share this

If you enjoyed reading this article, why not share it?

Simply copy and paste the text and include a link to the article. Please read the Expertise Articles Terms of Use before sharing.

Related articles


 

Find out how we can help


If you'd like to speak to a specialist about how we can help build your business, get in touch.

This information is provided to licensed financial advisers only and is not to be distributed to retail investors. In no circumstances is it to be used by a potential investor for the purpose of making a decision about a financial product or class of products. This information, should not be considered as a recommendation in relation to holding, purchasing or selling securities or other instruments. While due care has been used in the preparation of the information, actual results may vary in a materially positive or negative manner.

This information has been prepared by Macquarie Investment Management Limited ABN 66 002 867 003, AFSL 237492 ("MIML"), the issuer of units in the Funds mentioned above and is current as at March 2016.The information in this email is provided for general information purposes only and does not take into account the investment objectives, financial situation or needs of any person. It should not be relied upon in determining whether to invest in a fund. In deciding whether to acquire or continue to hold an investment in a Fund, investors should consider the product disclosure statement. The product disclosure statement is available from MIML by phoning 1800 814 523.

Future results are impossible to predict. This report includes opinions, estimates and other forward-looking statements, which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements. Forward-looking statements constitute our judgement as at the date of preparation of this report and are subject to change without notice.

Investments in a Fund are not deposits with or other liabilities of Macquarie Bank Limited or of any other Macquarie Group entity and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. None of Macquarie Bank Limited or any other member of the Macquarie Group guarantees any particular rate of return or the performance of a Fund, nor do they guarantee the repayment of capital from a Fund.

Except for Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 (MBL), any Macquarie entity referred to on this page is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth). That entity's obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that entity, unless noted otherwise.