APG / SGA (Allgemeine Plakatgesellschaft / Société Générale d'Affichage) is the Swiss leader in outdoor advertising ("out of home media"), with a market share of around 65%. Numbers 2 and 3 are Clear Channel and Neo Advertising (controlled by Tamedia), with market shares of 28 and 5% respectively.
The headquarters of this company founded in 1900 is in Geneva. The company organizes the display, maintenance and installation of advertising surfaces and supports in public transport, in train stations, on the street, in shopping centers and airports. Long-term concessions with public and private partners form the basis of the company.
Unfortunate experiences abroad (mainly in Greece and Romania) cost APG a lot of money in the years 2008-2010. Now the company focuses only on the domestic market, with the only exception being Serbia.
APG operates in a non-cyclical sector and its profitability is extraordinary. The return on equity (ROE) is extremely high, fluctuating between 20 and 25% depending on the year. The net profit margin (NPM) of around 15% is not far behind. The equity of around 50% is quite acceptable for this sector of activity.
The dark spot on the horizon is that the Swiss market is more or less saturated and for several years there has been a fierce competition between the 3 main players, which implies increased pressure on prices and therefore on margins. Losses of market share are also likely, hence a significant risk of seeing turnover erode.
2017 was a turbulent year for APG on the stock market due to the uncertainties surrounding the major tender from the SBB, a mandate that APG ultimately won. This contract was essential for APG, since the SBB accounts for around a fifth of its turnover.
The stock is currently trading at 435 francs, with an estimated 2018 PER of 24. This is too expensive and that is why I would wait for prices to reach 400 francs to initiate a new position. On the other hand, I would keep the shares already purchased years ago (as is the case for your servant).
The payout ratio is higher than 100%, but this is not a problem since APG has explicitly decided to pay since 2014 an ordinary dividend doubled by an extraordinary dividend, with the aim of reduce the large liquidity in order to avoid paying interest due to negative interest rates. The current yield of 5.5% is extremely attractive.
This is definitely a stock to buy more for its dividend than for its appreciation potential. The large cash reserves, the capital-light business model and the strong cash flow should continue to allow APG to remain one of the largest dividend payers in the Swiss market.
HOLD!
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Thank you dividinde for this beautiful analysis.
It's funny, I'm actually writing an article on the benefits of having stocks in your portfolio that pay "small" dividends, so you're taking my exact opposite view with APG!
It is true that the profitability of this Geneva company is quite exceptional. In addition, the debt is almost non-existent!
The dividend growth of 40% per year over the last five years, combined with a free cash flow margin of 15%, that also gives off…
If that's not a cash cow, I'll join the priesthood!
The price, however, is a problem for me, as you have already pointed out. At the moment it is much too expensive.
And then there is the competition from the web too…
Small dividends:
I am in favor of a mixed approach, that is to say that I have in my portfolio cash cows like APG or Cembra, small dividends like IVF Hartmann or Lindt, and especially average yields like Nestlé or Novartis. A good cooking recipe requires a nice diversity of ingredients!
I look forward to reading your new article on this subject 🙂
Web competition:
Recent years have shown that it is mainly advertising in the print media that has suffered greatly from this. It seems that posters, digital billboards and other forms of "out of home" advertising are no less in demand than before in the street, train stations, airports, etc.
The article will be out soon 😉
Well, it makes sense that street ads are still relevant. People are forced to watch them, smartphone or not.
Besides, it reminds me of the H&M ads from back in the day... the number of times I almost had a car accident because of their models in bikinis!
Since the fall last March, the stock has not rebounded... buying opportunity despite the cancellation of the 2019 dividend?
APG is one of “my best bowls” as Jérôme would say! 😉
My wallet is still full of it, the price is in the cellar and the dividend has gone up in smoke...
It is difficult to recommend this stock under these conditions. The fundamentals have seriously deteriorated, liquidity has melted like snow in the sun and competition has become fiercer. I would not touch it under these conditions, even if of course it is possible that the stock will rebound at any time. Too many uncertainties for my taste.