Digital Out-of-Home Advertising And Data Integration Will Expand Market Reach

Key Takeaways

• Strategic focus on leveraging existing infrastructure and digital advancements is boosting margins and free cash flow through reduced capital expenditure.
  
• Strong positioning in the German advertising market and growing DOOH segment drive revenue growth and potential margin improvements.
  
• Increased competition and geopolitical uncertainties pose risks to Ströer's revenue stability and growth, with strategic investments potentially not yielding immediate financial returns.

Catalysts

Provides out-of-home (OOH) media and online advertising solutions in Germany and internationally.

• The growth of Digital Out-of-Home (DOOH) advertising is a long-term revenue driver, with the segment growing over 23% and outperforming global platforms. This should continue to have a positive impact on the group margin and revenues.
  
• The company is optimizing its existing infrastructure with a focus on leveraging current capacities rather than extensive new CapEx, improving margins and free cash flow through reduced capital expenditure.
  
• Programmatic audience buying in DOOH allows for near real-time campaign execution and better integration into advertisers' ecosystems, which could drive increased demand and revenue.
  
• The integration of more data sources and advancements in technology, including AI, are expected to enhance targeting precision and campaign effectiveness, resulting in higher revenue and potential margin improvements.
  
• The strategic positioning and large contract portfolio in the German advertising market place Ströer in a favorable position to capitalize on market share gains in an expanding DOOH landscape, contributing to revenue growth and improved earnings.

Ströer SE KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ströer SE KGaA's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 9.7% in 3 years time.
• Analysts expect earnings to reach €242.4 million (and earnings per share of €4.67) by about May 2028, up from €130.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the GB Media industry at 30.0x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.44%, as per the Simply Wall St company report.

Ströer SE KGaA Future Earnings Per Share Growth

Risks

• The political uncertainty in Germany, particularly involving the breakup of the traffic light coalition, could have negatively impacted advertising revenues towards the year's end, reflecting potential risks in revenue stability for 2025.
  
• The rise of global players like Deutsche Telekom entering fragmented markets may introduce increased competition, possibly impacting Ströer's market share and revenue growth in their core Digital Out-of-Home segment.
  
• Economic uncertainty related to ongoing geopolitical events, including the war in Ukraine, could create adverse conditions impacting advertising budgets, affecting Ströer’s revenue and earnings potential.
  
• The company's acquisition activities and significant capital expenditures, although strategic, may not immediately result in proportional revenue increases, posing risks to net margins and overall earnings.
  
• Delays in the anticipated growth of segments such as Asam, due to market challenges in regions like China, could contribute to weaker-than-expected revenue growth, impacting overall earnings potential.

Valuation

• The analysts have a consensus price target of €70.045 for Ströer SE KGaA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €100.0, and the most bearish reporting a price target of just €53.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.5 billion, earnings will come to €242.4 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 5.4%.
• Given the current share price of €52.5, the analyst price target of €70.05 is 25.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.