9min read
PREVIOUS ARTICLE The online media duopoly NEXT ARTICLE What if May falls in June?

The competition watchdog’s recent decision to reject oOh!Media and APN Outdoor Group’s proposed merger attracted plenty of headlines. Less considered is the impact on smaller rival QMS Media and whether it is a takeover target as big players look for scale.
To recap, I outlined a positive view on oOh!Media and APN Outdoor Group for The Bull in February 2015. oOh!Media has soared from $2.24 to $4.42 since that article, hitting a 52-week high of $5.88. APN Outdoor rallied from $2.72 to as high as $8.28, before slumping to $4.72. 
Chart 1: oOh!MediaSource: The Bull 
Chart 2: APN Outdoor GroupSource: The Bull 
My view was based on future increases in out-of-home advertising’s share of the total market. Outdoor and indoor billboards are one of the fastest-growing advertising segments, albeit off a relatively low base. The segment has excellent long-term growth prospects.
Two main factors are driving growth. The digitisation of billboards, from static ads to eye-catching, real-time displays, is creating advertising opportunities and driving up yields. Notice how many digital billboards plaster key CBD intersections these days.
The second factor is greater availability of billboard positions along key roads, at shopping centres and in airports. Billboards provide revenue opportunities for landlords and interactive displays help drive store traffic and promotions at shopping centres.
Digital out-of-home advertising is part of a broader trend of better customer segmentation through technology. For example, a breakfast foods company promotes its cereal on a digital billboard in the early morning; a pharmaceutical company markets its flu tablets on a cold, rainy day. Tactical marketing such as this was difficult on static, paper billboards.
The market could not get enough of oOH!Media and APN Outdoor when they listed in late 2014. oOh!Media raised $168.8 million at $1.93 a share and APN raised $329 million in November by offering shares at $2.55. They were some of the best IPOs in years. 
The merger aspirations did not surprise. There would have been significant scale benefit from merging the two dominant out-of-home advertising providers and revenue opportunities for creating a larger national billboard network.
The Australian Competition and Consumer Commission did not see it that way, even though there is considerable media competition from international players and greater scope for competition in the digital-media age. oOH!Media and APN terminated the merger. 
Neither stock fell sharply on the news; presumably the market expected the ACCC move. However, both stocks are well down on the 2016 highs, a sign that they had become expensive after an almighty rally since their 2014 Initial Public Offerings.
A third player, QMS Media, raised $90 million through an IPO and listed on ASX in June 2015 at 65 cents. It trades at $1.11, having rallied a little on the oOH!Media/APN news. Some investors no doubt see QMS as a target for scale-hungry larger players, but the stock is well down on its 52-week high of $1.40.
Chart 3: QMSSource: The Bull 
QMS was established in 2014 to roll up several outdoor advertising companies. The $369- million QMS is about half the size of oOH!Media and APN Outdoor by market capitalisation, but is growing quickly through acquisition. 
Managing director Barclay Nettlefold has a strong following in this industry after developing several leading outdoor advertising businesses in Australia and across Asia over a long career. A strong board and management team, and backing by Qatar investors, has attracted attention.
QMS in February announced a 78 per cent increase in revenue to $79 million for FY17 and a 32 per cent increase in after-tax net profit to $7.5 million. 
The company delivered 16 digital billboards in the half and is on track to have 78 by the end of FY17. Another 19 sites are approved for development. The launch of QMS Sport, a multi-media digital offering across key sporting stadia, impressed. 
QMS’s New Zealand acquisition gives it a strong foothold in that market and contract wins in Auckland and Indonesia are good signs. 
The company increased its FY17 underlying earnings (EBITDA) guidance to $37 million, largely because of underlying strength in the out-of-home advertising market and the delivery of several upgraded landmark digital billboards that will lift earnings.
But the shares did not move much after the interim result and are well down on the mid-2016 highs, despite the operational progress. That could be an opportunity for investors.
One train of thought is that QMS will be acquired by a bigger predator that is eager to add its billboards to a larger inventory, without lessening industry competition or triggering regulatory concerns. Key investors would presumably require a much higher price to part with their shares and a contested acquisition for QMS is a good bet.
Another theory is that QMS had more to gain from the oOh!Media/APN merger proceeding, as large media buyers looked for alternatives beyond the dominant provider.  
Either way, QMS is growing nicely in an attractive industry, here and offshore, and meeting key targets such as billboard rollouts. 
As the market focuses on big out-of-home advertising stocks, it might pay to look behind the headlines for smaller players benefiting from the same industry tailwinds. 
As a small-cap stock, QMS suits investors comfortable with higher investment risk.

>> BACK TO THE NEWSLETTER: Click here to read other articles from this week’s newsletter

• Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without considering your objectives, financial situation or needs. Before acting on the information in this article you should consider its appropriateness, regarding your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at May 24, 2017.