Irish eyes are smiling
The younger O'Reilly is regarded as something of a boy wonder. In 1988, aged 23, O'Reilly came to Australia to sit on the board of Australian Provincial Newspapers, his father's Queensland regional newspaper publishing outfit. When the company went public in 1992, with the O'Reilly-controlled Independent News and Media plc retaining 41%, Cameron was promoted to Deputy CEO. In 1996, aged 31, he got the top job, and turned out to be no mere time server.
Lush cash flow
Australian Provincial Newspapers became APN News and Media because O'Reilly siphoned the lush regional newspaper cash flow (it continues to own around 64 different titles) into radio broadcasting and outdoor advertising concerns. At first glance that sounds rather counter-productive, but it hasn't stopped APN's sales and profits growing over the past seven years at 20% p.a.
The transformation has worked because Australian media is changing, with free-to-air television in decline and being replaced by competing media like Pay-TV and the internet. Part of the 'advertising spend' has moved back to radio, and part of it has moved into outdoor advertising. In each case O'Reilly has APN positioned to ride the trend.
Publishing now makes up around 45% of sales, as opposed to 30% for radio and 2% for outdoor advertising - a nice balance of revenue sources. Radio is actually more lucrative than newspapers. In 1999 the company's 11 stations in Australia and 55 in New Zealand turned in a gross profit margin of close to 30% as opposed to 20% for publishing. In outdoor advertising the margins are only 16%, but revenues for APN's four outdoor businesses - Buspak, (advertising on the sides of buses), Adshel (advertising on bus shelters), Australian Posters (billboards) and Cody Outdoor (large scale billboards) - are growing rapidly, with growth of 50% in 1999.
Riding trends
Companies riding trends like these don't get hit by temporary reversals in the business cycle. We're reasonably certain profit growth will remain at least 15%. Despite the rapid growth so far and the low level of gearing, investors haven't overpriced APN yet. At a PER of around 20, as against an All Industrials PER of 25, APN represents excellent value. ACCUMULATE or BUY CLOSER to $3.50.