As a nasty storm approached South-East Queensland, a local insurer advertised its home and contents insurance products. Nothing unusual about that. Except that the ad was created for digital outdoor advertising media quickly in response to the weather. 

In years past, the advertisers would have met the outdoor advertising company, had the ad designed and printed, and plastered on a billboard when it became available. It would have taken weeks or even months, with several storms probably striking by then.

Welcome to the world of digital out-of-home advertising – one of the most interesting segments of the media industry and a strong tailwind for oOH! Media Group and APN Outdoor Group, two Initial Public Offerings (IPOs) from late 2014.

Out-of-home audiences increased for the fifth consecutive year, up 3.4 per cent, latest data from the Outdoor Media Association (OMA) shows. The industry enjoyed record growth in 2014 with net revenue up 10 per cent year-on-year. In a struggling media industry, out-of-home advertising has grown for 19 of the past 20 quarters, OMA reports. 

Outdoor advertising is, however, a small part of the total media spend. About 5 cents in every advertising dollar is spent on outdoor platforms compared with almost 31 cents for online, 30 cents for TV, 15 cents for newspaper, and 9 cents for radio advertising.

Outdoor’s share of total advertising is growing at under a half a per cent. But in an $11.6 billion industry, even small market-share gains for outdoor advertising can have a big impact when there are only a few significant players. 

I expect out-of-home advertising to grow faster in the next few years. Digital advertising will transform the industry as static printed billboards are replaced by electronic ones. Witness the effect of digital advertising billboards at large sporting arenas – annoying for patrons, super effective for advertisers, and a source of higher profit margins for media companies. 

Digital outdoor devices allow more ads to be rotated in the one space, require less handling (as ads are sent electronically) and can be tailored to specific conditions or events – such as a sun-cream company advertising on a hot day.

Smartphone saturation is another tailwind for outdoor digital advertising. Increasingly, consumers are swiping phones across outdoor ads to access more information or special marketing offers. Technology is reinventing the outdoor advertising experience.

Population growth and rising traffic congestion is another driver. As capital cities become more congested, and people more time in cars, airports and shopping centres, outdoor advertising platforms should reach a larger audience for media buyers. 

Supply is another positive. As apartment and retail complexes are built, and traffic infrastructure (hopefully) is upgraded, there should be better outdoor spots to advertise. But rising competition for top locations could lift prices. 

I like the business model of the big outdoor advertisers. Rent an outdoor location for 10 years with an option for another 10, and link annual fee rises to the consumer price index. Then work the digital or static billboards as hard as possible, to maximise revenue while the cost base is predictable and slow growing. 

oOH Media and APN Outdoors are the best ways to play this trend. oOH! Media raised $86 million in an IPO in December 2014 at $1.93 a share. Now at $4.26, it has been one the best floats of the past few years. 

oOH! Media

Source: The Bull

APN Outdoor raised $125 million in an IPO at $2.55 a share and listed in November 2014. It trades at $5.43 and has become another star IPO.

APN Outdoor Group

Source: Yahoo

I last covered oOH! Media for the Bull in February 2014 at $2.24 in ‘2 media stocks bucking the trend’.  APN was $2.74. After roughly doubling in under a year, the temptation is to sell, take profits and reinvest in cheaper stocks. oOH! Media and APN Outdoor trade on Price Earnings (PE) multiples of 31 and 26 respectively, consensus estimates show.

In this case, oOH! Media and APN should deliver rapid earnings growth to justify further share-price gains, albeit slower from here. Both stocks are due for a breather and a share-price pullback could create a buying opportunity for long-term investors. 

A median price target of $4 for oOH! Media, based on a small range of broking forecasts, suggests it is fully valued at the current price. A median price target among brokers of $4.50 for APN implies it is overvalued at the current price.

Of the two, I prefer oOHMedia! It is slightly cheaper and has shown it is aggressively using technology to help advertisers through more responsive advertising formats and newer techniques such as content marketing products. 

Early investors in both stocks have a case to hold their stock in anticipation of further earnings growth and share-price gains in the long term. Prospective investors might watch and wait for better value as some steam comes out of their share price. 

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Tony Featherstone is a former managing editor of BRW and Shares magazines. The column does not imply any stock recommendations. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at November 24, 2015. Disclosure: Tony Featherstone has written occasional columns for Short Press, a small business website owned by oOH! Media since September 2015.