JC Decaux - the poster boy of global advertising
With an unprecedented amount of cash flowing into European stocks as a consequence of quantitative easing (QE) and the switch of investor appetite away from the US market, the big skill in 2015 is to spot the European winners.
Nevertheless, while QE and its wall of money is tending to reduce risk of Euro stocks, it is not eliminating it. So it is still necessary that investors pick shares that have wide potential, global reach and have at their core some good ideas.
That drove me this week to consider the thinking-man's poster company, JC Decaux, now the largest outdoor advertising company in the world and the genius behind the global craze for centre city bicycle renting.
Decaux is a relatively young company and you only need go back 60 years to the time when it was a gleam in the eye of one Jean-Claude Decaux. Then the French state was taking a heavy hand with roadside bill boarders, calling them a 'blight'.
Decaux switched his attention to bus shelters which he offered to clean and maintain in return for the right to advertise on them. The concept exploded, went global and today Decaux is the No 1 player in a market worth €34bn. Operating in 60 countries (including Ireland), it has 12,000 employees and is valued at €7.5bn.
The company has over 140,000 bus shelters worldwide, from Dublin to Doha. At the beginning of this century Decaux acquired a company called Abenir, bringing it into a new activity, transport advertising (airports and railway stations).
At the same time, it pioneered the new market for eco-friendly transport so familiar to city dwellers, the self-hire bicycle. Today this service is available in 70 cities with a worldwide stock of 47,000 bicycles.
The company sells advertising everywhere, on bus shelters, billboards, buses, trains, railway stations, airports and malls. Last year, it had concessions in more than 145 airports and 270 train and underground stations worldwide. It has also installed 1,000 digital advertising clocks in Sao Paulo, Brazil's largest city.
Interestingly, last December Decaux agreed with Vodafone to install small transmitters on 70,000 of its bus shelters. Any capital requirements for Decaux are low. So analysts are of the opinion the deal will boost Decaux's sales and profits.
One third of Decaux's revenues are derived from developing markets but Europe still generates 60pc of group revenue. Asia-Pacific contributes a quarter of the revenues helped by its entry into the Chinese market at the beginning of this decade, when it purchased two local companies, giving it a presence in many Chinese underground and buses stations. Its global footprint increased when it purchased the South American firm EUMEX, the large Russian company RUSS, and entered the vast African market.
Last year, Decaux had record revenues and operating profits with sales at €2.8bn and operating profits of €630m, projections for this year are €3.2bn. These results reflect strength of the transport sector and the Asia-Pacific region. Bus shelters are the largest contributor to group sales at €1.35bn, followed by transport sales of €1bn and billboard sales were 'challenging'. The company's shares trade just above €30, a 20-year high, and its price earnings multiple is a very rich 39. The company is focused on organic growth with selective bolt-on acquisitions and while it has been running a conservative balance sheet for the last few years, anticipating a consolidation in the US market, unfortunately potential assets have moved away from its price range.
Like most companies covered in this column, Decaux has launched a share buyback programme of €500m. While it is dependent very much on what is happening in the European economy, it has a strong market position in Asia. The cash freed-up by QE that is looking for a good home will almost certainly be attracted to firms like Decaux - in spite of its chunky multiple.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.