JCDecaux has impressed the market with annual results that tick all the boxes. In a changing sector, the group appears to be one year ahead of its schedule. The digitalization of the business has finally enabled it to return to an operating margin exceeding 20%.
And, given the strong operating leverage, the increase in margins is reflected even more sharply in profits, which have risen by 22%, while revenue grew by only 1.8%.
Cash generation is excellent, up nearly 50% to €343m – reportedly thanks to better inventory management. This is €80m higher than profits, a fine conversion rate that one hopes will be sustained over time.
To crown this publication, solid guidance was also required, which has been delivered. For Q1, management says it expects growth of 5%, while the consensus was looking for half that. This optimism is based on the positive impact of the Winter Olympics and a recovery in growth in the Chinese market (10% of sales) and their Lunar New Year.
Long hovering around €3bn, the group's revenue is on the verge of reaching €4bn for the first time. These revenues are divided into three segments.
The most important - both for margins and revenue, contributing half of the total - is Street Furniture. The second, the most dynamic thanks to the structural growth of tourism, is Transport advertising, which accounts for 36% of sales. Finally, the laggard, with low margins and declining sales, is the Billboard segment – typically on highways or large wraps – accounting for 13% of revenue.
Within this mix, digital has become the true engine. Screen-based advertising now represents 42% of revenue, with a compound annual growth rate of 16% over ten years. It is this momentum that could allow JCDecaux to become a true outdoor media platform, rather than just an operator of street furniture.
Programmatic advertising, which still contributes only marginally to revenue, constitutes an additional lever in this respect. It provides clients with more tools to manage their campaigns, with a more flexible, measurable, and consequently, more monetizable offering.
In one of the most optimistic post-earnings notes, the Barclays analyst covering the stock points out that the group's historical growth is around 3%. According to him, the potential of programmatic could add an additional 3%.
The group also appears well-positioned, both in the face of artificial intelligence and on the competitive front.
Regarding AI, JCDecaux benefits from the protection afforded by its physical assets, which provides resilience. Protected from disruption, they have a clear path to improve their offering and productivity through new tools.
On the competitive front, news from Clear Channel Outdoor also reinforces the positive reading of the case. The other major global player in the sector is set to be delisted and has sold its European operations to refocus on the US, a market where JCDecaux has a limited presence. This could potentially strengthen its bargaining power with certain clients.
These new prospects are likely to reshape the group's growth profile and support a rerating. Especially since the valuation is emerging from historical lows this year.
Analysts at Kepler Cheuvreux also point out that advertising sector peers are trading at higher multiples, even though they do not offer the competitive advantage of a global number one.
This, then, is the thesis that could justify a rerating. However, more evidence will likely be needed to convince the market. The operating margin had been in steady decline since 2004 and a peak of 28.5%. Now back to pre-Covid levels, the market will surely wait for confirmation at this level, as well as in terms of growth and cash generation, before considering a more sustainable upside.
