New Contracts In Stockholm And Digital Expansion Will Strengthen Future Prospects

Key Takeaways

• Strong geographic presence and major events suggest potential revenue growth despite challenges, with digital growth boosting profitability.
  
• Programmatic and digital expansion, market entries, and contract renewals enhance earnings and shareholder returns potential.
  
• JCDecaux faces risks from weak Chinese market recovery, reliance on macroeconomic factors, digital shift execution challenges, high fixed costs, and competitive pressures.

Catalysts

Operates as an outdoor advertising company worldwide.

• JCDecaux's organic revenue growth near 10% in 2024, driven by diverse geographic presence and major sporting events, suggests continued revenue growth potential despite challenges in China.
  
• The strong growth in programmatic advertising, expected to double to 20% of digital revenue, could enhance revenue and earnings through higher yield on inventory.
  
• JCDecaux's digital revenue grew by 21.7% organically, with an increase in the share of digital revenue across all segments. This trend is likely to boost revenue and improve net margins due to the higher profitability of digital over analog.
  
• The expansion into new markets and contract renewals, such as the Greater Stockholm bus shelters and major metro stations, provide a foundation for revenue growth and operational margin improvement.
  
• The resumed dividend policy and the intention to gradually increase dividends, combined with solid financial performance, suggest potential growth in earnings and an optimistic outlook for shareholder returns.

JCDecaux Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JCDecaux's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.1% today to 6.7% in 3 years time.
• Analysts expect earnings to reach €288.5 million (and earnings per share of €1.36) by about July 2028, up from €258.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €346.4 million in earnings, and the most bearish expecting €214.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, up from 12.6x today. This future PE is greater than the current PE for the GB Media industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.42%, as per the Simply Wall St company report.

JCDecaux Future Earnings Per Share Growth

Risks

• The Chinese market remains a significant concern, with no strong recovery in sight, potentially impacting JCDecaux's future revenue growth and overall earnings, given that China previously accounted for a larger share of their revenue.
  
• Despite reporting strong financial performance, JCDecaux's ongoing reliance on macroeconomic factors, such as geopolitical tensions and economic conditions, presents a risk that could negatively impact future revenue and profit margins.
  
• The shift towards digital and programmatic advertising may pose execution risks, especially if market adoption does not scale as expected, which could affect projected revenue increases and digital segment earnings.
  
• JCDecaux's exposure to fixed rents and fees, comprising two-thirds of their cost, could constrain profit margin improvements if market conditions fluctuate or if variable costs do not scale proportionately with revenue growth.
  
• Competitive pressures in key markets such as Germany and Paris, where JCDecaux faces tender losses and market share battles, may restrict revenue growth opportunities and put pressure on maintaining high operating margins.

Valuation

• The analysts have a consensus price target of €19.485 for JCDecaux 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 €24.0, and the most bearish reporting a price target of just €15.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.3 billion, earnings will come to €288.5 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 8.4%.
• Given the current share price of €15.22, the analyst price target of €19.48 is 21.9% 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.