Outdoor Advertising. In the Digital Age

Transcription

1 G.research, LLC One Corporate Center Rye, NY Tel (914) July 20, 2016 Outdoor Advertising In the Digital Age Companies Ticker Price Exchange Clear Channel Outdoor Holdings CCO - $ NYSE Lamar Advertising LAMR NASDAQ Outfront Media OUT NYSE JC Decaux SA DEC-FR Paris Brett Harriss Gabelli & Company 2016 (914) Please Refer To Important Disclosures On The Last Page Of This Report-

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3 G.research, LLC One Corporate Center Rye, NY Tel (914) Outdoor Advertising July 20, 2016 Summary and Opinion Since the financial crisis, outdoor advertising as an advertising medium has proven to be remarkable resilient. While digital advertising has grown at an 18% CAGR over the last ten years, cannibalizing print advertising, Outdoor advertising maintained its share of media spending at ~6.5%. Table 1 Global Advertising P '10 - '20P E 2017P 2018P 2019P 2020P CAGR Television $149,632 $155,284 $162,999 $166,305 $172,440 $171,972 $179, , , , , % Digital 63,459 76,748 89, , , , , , , , , Radio 27,942 28,379 28,939 29,184 29,327 29,460 29,394 29,112 28,794 28,476 28, Outdoor 24,472 25,732 26,979 27,879 28,964 30,137 31,279 32,329 33,112 33,886 34, Print 106, ,445 96,994 91,196 83,903 76,138 70,045 63,975 58,308 52,984 48,004 (7.6) Total Advertising $371,772 $389,588 $405,440 $420,305 $440,336 $456,371 $480, , , , , Traditional $20,654 $21,328 $21,895 $22,370 $22,941 $23,239 $23,641 23,904 23,991 24,067 24, Digital 1,567 2,073 2,732 3,122 3,602 4,208 4,856 5,564 6,215 6,874 7, Cinema 2,252 2,330 2,352 2,387 2,421 2,690 2,782 2,862 2,907 2,946 2, Total Outdoor $24,472 $25,732 $26,979 $27,879 $28,964 $30,137 $31,279 32,329 33,112 33,886 34, % ad spend 6.6% 6.6% 6.7% 6.6% 6.6% 6.6% 6.5% 6.5% 6.4% 6.3% 6.2% % growth 5.9% 5.1% 4.8% 3.3% 3.9% 4.1% 3.8% 3.4% 2.4% 2.3% 3.0% Source: Magna Global We remain confident that outdoor advertising will retain its share of media spending as the medium benefits from key advantages: Out of home advertising is nearly impossible to avoid and a relatively inexpensive way to reach large audiences. As media fragmentation continues, the unique reach the medium provides becomes more valuable. The targeted and measurable advertising typical of the Internet is an excellent way for facilitating action in the late stage of the purchase process. However, Internet advertising still falls short in generating general awareness and interest for consumers, leaving a very necessary place for mass media like Outdoor advertising. We believe recent technological developments and cyclical challenges may have accelerated the fragmentation of other media to the benefit of outdoor. Outdoor is a predominantly local medium generating approximately 70-80% of its revenue from local advertisers. The outdoor industry competes primarily with radio, broadcast television, and newspapers for local ad dollars. - Broadcast and cable television faces rating declines as viewers switch to ad-free subscription on-demand internet video such as Netflix and Amazon Prime. The remaining impressions are further undermined by the ever-increasing presence of DVRs (55% of US households) and MVPD provided VOD services. - Newspapers have been experiencing ongoing decreases in circulation rates and have demonstrated an inability to meaningfully monetize their online audience. Widespread bankruptcies and a secular decline in circulation seem inevitable, further reducing advertising inventory available to local businesses. Digital billboards deliver three key improvements to advertisers: the flexibility of shorter booking periods; the ability to better target consumers (for example time-of-day); and greater impact through color and illumination. The result for operators has been higher per-face revenue (~6x per analog board) and returns on capital. We also believe digital boards provide the opportunity to facilitate location-based advertising, mobile integration and automated and programmatic ad buying. The advantages of digital outdoor advertising are demonstrated in 23% CAGR over the last ten years. Digital outdoor advertising now makes up ~16% of total global advertising. -1-

4 US Outdoor Advertising Just like the global market, US outdoor advertising maintained its share of the US advertising market over the last ten years. US outdoor has accounted for ~4% of total spending over the last ten years, and even proved to be more slightly more resilient than the market as a whole during the financial crisis. Digital billboards took share as the major operators added inventory over the period. Table 2 Source: Magna Global Key trends in the US market include: US Outdoor Advertising P '10 - '20P E 2017P 2018P 2019P 2020P CAGR Television $58,021 $58,918 $64,088 $63,561 $66,058 $63,746 $68,214 $64,829 $67,819 $64,505 $68, % Digital 26,342 31,983 36,572 42,781 49,455 59,329 67,895 76,236 84,982 94, , Radio 15,348 15,270 15,450 15,265 14,806 14,439 13,932 13,518 13,070 12,629 12,184 (2.3) Outdoor 6,143 6,388 6,652 6,935 7,001 7,323 7,557 7,758 7,946 8,136 8, Print 37,624 35,334 32,390 30,204 26,701 23,305 20,985 18,459 15,872 13,326 10,583 (11.9) Total Advertising $143,477 $147,893 $155,152 $158,746 $164,021 $168,141 $178,584 $180,800 $189,690 $192,718 $202, Traditional $4,955 $5,083 $5,081 $5,220 $5,157 $5,207 $5,239 5,250 5,254 5,254 5, Digital ,037 1,212 1,399 1,572 1,735 1,900 2,070 2, Cinema Total Outdoor $6,143 $6,388 $6,652 $6,935 $7,001 $7,323 $7,557 7,758 7,946 8,136 8, % ad spend 4.3% 4.3% 4.3% 4.4% 4.3% 4.4% 4.2% 4.3% 4.2% 4.2% 4.1% % growth 4.1% 4.0% 4.1% 4.3% 1.0% 4.6% 3.2% 2.7% 2.4% 2.4% 2.2% In the US, competition for outdoor advertising is limited by regulation. The Highway Beautification Act of 1965 and state and local regulation, make the construction of new billboards extremely difficult. This limits the supply of outdoor advertising inventory to the benefit of incumbent operators. Acquisitions remain the only avenue available for large scale inventory growth. In 2014, Lamar Advertising (NASDAQ:LAMR) requested and received permission from the IRS to file as a REIT (Real Estate Investment Trust). In the same year, Outfront Media (NYSE:OUT), formerly CBS Outdoor, was splitoff from CBS and converted into a REIT. REIT s are not required to pay taxes at the corporate level so long as they distribute 90% of REIT taxable income to shareholders. As such, REITs are tax efficient and typically make substantial dividend payments which are especially appealing in the current low yield environment. These conversions resulted in a significant step-up in valuation multiples across the industry. Consolidation remains an attractive opportunity for the three largest US outdoor operators. October 2, 2014, Outfront Media closed on Van Wagner with the transaction valued at $690 million. With $206 million of revenue and $32 million of EBITDA, Outfront paid ~21.5x EBITDA for the assets, believing synergies could bring the multiple down to 11x after synergies were realized. In January 2016, Clear Channel Outdoor (CCO) closed a $460 million asset sale to Lamar for 12.5x EBITDA. Both these transactions highlight the private market value of outdoor assets. We expect consolidation to continue at the margin. Table 3 Source: Magna Global US Outdoor Industry Concentration E '06 - '16E E CAGR Clear Channel $1,341 $1,485 $1,430 $1,238 $1,290 $1,253 $1,279 $1,290 $1,321 $1,349 $1,300 (0.3%) Outfront Media 2,103 2,187 2,171 1,723 1,819 1,286 1,099 1,130 1,199 1,380 1,421 (3.8) Lamar 1,120 1,210 1,198 1,056 1,092 1,133 1,183 1,246 1,287 1,353 1, Other 2,220 2,401 2,192 1,884 1,941 2,716 3,091 3,268 3,194 3,240 3, Total Outdoor $6,785 $7,283 $6,991 $5,901 $6,143 $6,388 $6,652 $6,935 $7,001 $7,323 $7,

5 Table 4 Outdoor Industry Trading Multiples Outdoor Advertising Clear Channel Lamar JC Deceaux Outfront Media CCO LAMR DEC NYSE:OUT 12-Month High/Low $ 9.75 $ 2.97 $ $ $ $ Capitalization FYE 12/31 FYE 12/31 FYE 12/31 FYE 12/31 Balance Sheet as of: 3/31/16 3/31/16 3/31/16 3/31/16 A Shares B Shares (a) Options/Converts Fully Diluted Shares Outstanding Price as of 7/19/2016 $6.83 $ $24.00 Equity Market Capitalization $2,470 $6,738 6,868 $3,300 Net Debt and Preferred Stock 4,624 $2, $2,215 Minority Interest Hidden Assets (640) (b) Total Enterprise Value (TEV) $6,690 $9,147 7,092 $5,515 Consolidated: Net Revenues 2017P $2, % $1, % 3, % $1, % (growth) 2016P 2, , , , E 2, , , , EBITDA 2017P $ % $ % % $ % (margin) 2016P P EPS 2017P nm $ $0.80 (growth) 2016P " P " TEV/EBITDA 2017P 10.0x 13.4x 12.1x 12.0x 2016P P P/E 2017P nm 19.8x 31.0x 30.0x 2016P " P " Private Market Value 2017P $14 50% $64 (8%) 30 (2%) $31 22% (current discount to PMV) 2016P 12 44% 64 (7%) 29 (7%) 29 18% 2015P 13 45% 52 (31%) 28 (12%) 28 15% Total Debt/EBITDA 6.9x 4.3x 0.2x 5.1x Net Debt/TEV 69.1% 26.3% 1.8% 40.2% Additional Information: Dividend $ % $ % $ % $ % (a) Clear Channel Communication (CCC) owns 315 million B shares (b) Intercompany loan due from parent company iheart Media Source: company reports, Gabelli & Company estimates -3-

6 Companies Mentioned Amazon (AMZN - NASDAQ) CBS Corporation (CBS - NYSE) Clear Channel Outdoor (CCO - " ) iheartmedia (IHRT - OTC) Lamar Advertising (LAMR - NASDAQ) Netflix (NFLX - " ) Outfront Media (OUT - NYSE) I, Brett Harriss, the Research Analyst who prepared this report, hereby certify that the views expressed in this report accurately reflect the analyst s personal views about the subject companies and their securities. The Research Analyst has not been, is not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Brett Harriss (914) Gabelli & Company 2016 Important Disclosures ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY TEL (914) FAX (914) Gabelli & Company is the marketing name for the registered broker dealer G.research, LLC, which was formerly known as G.research, Inc. Gabelli & Company ("we or "us") attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. Our research reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated. We do not undertake to "upgrade" or "downgrade" ratings after publishing a report. We currently have reports on 573 companies, of which 50%, 33%, 3% and 15% have a recommendation of buy, hold, sell or non-rated, respectively. The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%. Ratings Analysts ratings are largely (but not always) determined by our private market value, or PMV methodology. Our basic goal is to understand in absolute terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts that could encourage those private market values to surface. A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two to occur. A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other factors at work. A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value. Economic or sector risk could also be increasing. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. As of June 30, 2016, our affiliates beneficially own on behalf of their investment advisory clients or otherwise 9.76% of Clear Channel Outdoor, 9.62% of CBS Corp. Class A and less than 1% of CBS Class A and less than 1% of Amazon, Lamar Advertising iheartmedia, Netflix and Outfront Media. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. The analyst, who wrote this report, or members of his household, owns no shares of the above mentioned companies. -4-

7 G.research, LLC One Corporate Center Rye, NY Tel (914) July 20, 2016 Gabelli & Company Clear Channel Outdoor (CCO - $ NYSE) Margin of Safety - Buy (a) Clear Channel Communication (CCC): taken private by the Mays family, Bain Capital and Thomas H. Lee Partners, owns 1.7 million A shares and 315 million B shares COMPANY OVERVIEW Clear Channel Outdoor (CCO), based in San Antonio, Texas, is an international outdoor advertising company operating billboards, posters, street furniture, transit displays, mall installations and spectaculars. The company reports operating results in two segments: Americas (45% of sales) and International (55% of sales). We expect the company to generate 2016 revenue of $2.8 billion and EBITDA of $640 million. Reason For Comment We reiterate our Buy recommendation. Clear Channel Outdoor trades at an attractive valuation and we see a substantial margin of safety in shares: Year EBITDA EV/EBITDA PMV 2018P $ x $15 Dividend: None Current Return: Nil 2017P A Shares O/S: 47 million (1 vote) 2016P B " " : 315 " (10 votes) (a) 2015E Week Range: $ $2.97 Clear Channel trades below recent transactions. October 2, 2014, Outfront Media purchased Van Wagner for 21x EBITDA (or 11x post-synergy). Clear Channel s sale of assets to Lamar at 12.5x EBITDA demonstrates underlying value of the company s properties. In January 2016, Clear Channel Outdoor (CCO) closed a $460 million asset sale to Lamar. Both these transaction support our 12x multiple for CCO s US business. CCO trades at a discount to its public peers. Lamar, JCDecaux and Outfront Media all trade at 12-13x EBITDA versus Clear Channel with trades at 10x. The discount is driven by: 1) corporate governance friction; 2) the intercompany note, now $640 million or $1.77 per share, with CCO s highly-levered parent iheart Media; and 3) the REIT premium assigned to peers OUT and LAMR. We believe there are a number of potential catalysts. Financial distress could motivate iheart to either buy in the minority of CCO or sell the entire business. We expect JCDecaux could be a potential buyer given long-held aspirations to enter the US. While not a REIT today, the option to convert remains available to the company. CCO benefits from an ~$900 million NOL that makes a REIT conversion unnecessary at this time. However, were the company to be separated from iheart or to exhaust its NOL, we expect a REIT conversion to be an attractive option. Investment Case The underlying outdoor business should benefit from a cyclical recovery in the global advertising market and a secular increase in outdoor as a share of total advertising. We calculate 2016E PMV of $12 per share and expect a REIT conversion of CCO s domestic business could be an eventual catalyst for shares. Table 1 Clear Channel Outdoor Projections 2010A-2019P '14 - '19P FYE 12/ A 2011A 2012A 2013A E 2016P 2017P 2018P 2019P CAGR Revenue $2,798 $3,004 $2,945 $2,945 $2,960 $2,805 $2,765 $2,875 $2,990 $3, % % growth 3.7% 7.4% (1.9%) (0.0%) 0.5% (5.2%) (1.5%) 4.1% 4.0% 4.0% EBITDA % margin 22.7% 24.4% 22.2% 23.3% 23.1% 23.7% 23.1% 23.2% 23.4% 23.5% TEV / EBITDA 10.5x 9.1x 10.2x 9.8x 9.8x 10.1x 10.5x 10.0x 9.6x 9.2x Capex $195 $291 $251 $154 $165 $179 $179 $201 $209 $218 Net Debt (a) 1,940 2,003 4,383 4,621 4,748 4,749 4,624 4,624 4,624 4,624 (Cash) due from CCC (b) (384) (656) (729) (879) (948) (931) (794) (933) (936) (939) PMV (c) $12 $15 $13 $13 $13 $13 $12 $14 $15 $16 (a) Excludes receivable due from parent, Clear Channel Communication. (b) Assumes all free cash is swept into CCC cash management facility (c) 2010 & 2011 pro forma for $6.08 per share distribution paid March and includes cash due from CCC Source: Company reports, Gabelli & Company estimates -5-

8 Gabelli & Company Table 2 Clear Channel Outdoor PMV Analysis 2010A-2019P '14 - '19P FYE 12/ A 2011A 2012A 2013A E 2016P 2017P 2018P 2019P CAGR North America Revenue $1,290 $1,253 $1,279 $1,290 $1,321 $1,349 $1,299 $1,340 $1,380 $1, % EBITDA Valuation Multiple 12.0x 12.0x 12.0x 12.0x 12.0x 12.0x 12.0x 12.0x 12.0x 12.0x Segment Value $5,902 $5,849 $5,828 $6,037 $6,045 $6,221 $5,908 $6,150 $6,384 $6,609 International Revenue $1,508 $1,751 $1,668 $1,656 $1,640 $1,457 $1,465 $1,537 $1,613 $1, EBITDA Valuation Multiple 9.0x 9.0x 10.0x 9.0x 9.0x 9.0x 9.0x 9.0x 9.0x 9.0x Segment Value $2,371 $3,128 $2,831 $2,744 $2,720 $2,349 $2,550 $2,686 $2,829 $2,979 Total PMV $8,273 $8,977 $8,659 $8,780 $8,765 $8,569 $8,458 $8,835 $9,212 $9, Less: Net Debt (a) (2,003) (4,383) (4,621) (4,748) (4,749) (4,624) (4,624) (4,624) (4,624) (0.5) Plus: due from CCMH (b) (0.2) Less: Minority Interest (237) (237) (237) (237) (237) (237) (237) (237) (237) Equity Private Market Value $7,393 $4,769 $4,802 $4,729 $4,515 $4,393 $4,908 $5,288 $5, Shares Outstanding (year-end) PMV per share (c) $15 $13 $13 $13 $13 $12 $14 $15 $16 Current Discount to PMV 53.6% 48.9% 49.1% 48.2% 45.4% 43.9% 49.8% 53.4% 56.5% (a) Excludes receivable due from parent, Clear Channel Communication. (b) Assumes all free cash is swept into CCC cash management facility (c) 2011 pro forma for $6.08 per share distribution paid March 15, 2012 and includes cash due from CCC Source: Company reports, Gabelli & Company estimates Other Companies Mentioned: iheart Media (IHRT - NASDAQ) JC Decaux (DEC - Paris) Lamar (LAMR - NASDAQ) Outfront Media (OUT - NYSE) Clear Channel Outdoor - Price Performance Source: Public data. As of November 6, 2012 CCO was rated BUY. I, Brett Harriss, the Research Analyst who prepared this report, hereby certify that the views expressed in this report accurately reflect the analyst s personal views about the subject companies and their securities. The Research Analyst has not been, is not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Brett Harriss (914) Gabelli & Company 2016 Important Disclosures ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY TEL (914) FAX (914) Gabelli & Company is the marketing name for the registered broker dealer G.research, LLC, which was formerly known as G.research, Inc., Gabelli & Company ("we" or "us") attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. Our research reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated. We do not undertake to "upgrade" or "downgrade" ratings after publishing a report. We currently have reports on 573 companies, of which 50%, 33%, 3% and 14% have a recommendation of buy, hold, sell or non-rated, respectively. The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%. Ratings Analysts ratings are largely (but not always) determined by our private market value, or PMV methodology. Our basic goal is to understand in absolute terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts that could encourage those private market values to surface. A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two to occur. A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other factors at work. A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value. Economic or sector risk could also be increasing. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. As of June 30, 2016, our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 9.76% of Clear Channel Outdoor and less than 1% of IHRT, JC Decaux, Lamar and Outfront. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. The analyst, who wrote this report, or members of his household, owns no shares of the above mentioned companies. -6-

9 G.research, LLC One Corporate Center Rye, NY Tel (914) July 20, 2016 Lamar Advertising (LAMR - $ NASDAQ) Changing Recommendation - Hold Year EBITDA EV/EBITDA PMV 2018P $700 m 13.1x $69 Dividend: None Current Return: Nil 2017P A Shares O/S: 82.4 million (1 vote) 2016E B " " : 14.6 " (10 votes) 2015A Week Range: $ $49.73 COMPANY OVERVIEW Lamar Advertising Company, based in Baton Rouge, LA, is the second-largest US outdoor advertising company. The company generates 100% of its revenues in North America, and currently operates 144,000 billboards, 2,300 of which are digital, 134,000 logo signs and 42,000 transit faces. We expect the company to generate 2016 revenue of $1.5 billion and EBITDA of $668 million. Reason For Comment: We are changing our recommendation to Hold as the company trades at a valuation above our Private Market Value estimate. Since converting to a REIT in 2014, Lamar shares have appreciated ~$12 or 23% and now trade a record multiple: 13.5x 16 EBITDA and 14x AFFO. High operating leverage and incremental margins approaching 60% make the outdoor advertising business vulnerable to an economic contraction. While we remain optimistic in our expectations for the advertising market generally, and outdoor advertising specifically, we do not see a sufficient margin of safety to continue to add to a position. The US outdoor advertising industry remains very healthy. Lamar and other industry players discussed low-tomid-single digit growth in revenue through 2016 on 1Q conference calls. Momentum has improved from 1Q to 2Q, mirroring the strength in the television market. Local, 80% of the company s revenue, is driving performance (+4.5%) while national advertising is lagging somewhat (-1%). Much of this strength is driven by rate, not occupancy. Now seven years into the economic recovery, the company is finally able to take price with its local clients. Investment Case We remain positive on the underlying outdoor advertising business. Regulation-driven supply constraints, continued strength in the advertising market, the slow but steady recovery in local markets, and the durability of outdoor advertising as a medium should facilitate attractive industry returns in the medium term. However, at current prices we do not see a sufficient margin of safety and recommend investors Hold shares. Table 1 Source: Company reports, Gabelli & Company estimates Lamar Earnings & AFFO Model 2011A-2020P '15 - '20P FYE 12/ P 2017P 2018P 2019P 2020P CAGR Revenue $1,133 $1,183 $1,246 $1,287 $1,353 $1,516 $1,553 $1,592 $1,632 $1, % % Growth 3.8% 4.4% 5.3% 3.3% 5.2% 12.0% 2.5% 2.5% 2.5% 2.5% EBITDA % Margin 43.0% 42.3% 43.8% 43.4% 41.8% 44.1% 44.0% 43.9% 43.9% 43.8% AFFO % Margin 27.8% 30.2% 32.7% 31.3% 31.5% 31.7% 31.9% 32.2% TEV / EBITDA 18.8x 18.3x 16.8x 16.4x 16.2x 13.7x 13.4x 13.1x 12.8x 12.5x Price / AFFO Capex $107 $106 $106 $108 $105 $110 $116 $122 $128 $134 Net Debt 1,897 2,068 2,302 1,977 2,233 1,931 PMV $52 $64 $64 $69 $68 $74-7-

10 Table 2 Lamar Private Market Value Analysis 2011A-2020P '15 - '20P FYE 12/ P 2017P 2018P 2019P 2020P CAGR Revenue $1,133 $1,183 $1,246 $1,287 $1,353 $1,516 $1,553 $1,592 $1,632 $1, % EBITDA $487 $500 $545 $558 $566 $668 $683 $700 $716 $ MTC capex (5% rev) (57) (59) (62) (64) (68) (76) (78) (80) (82) (84) 4.3 Steady-state EBITDA Multiple 14.0x 14.0x 14.0x 14.0x 14.0x 14.0x 14.0x 14.0x 14.0x 14.0x Segment value 6,026 6,176 6,760 6,912 6,977 8,287 8,481 8,680 8,883 9, Memo Cap Rate 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% 7.1% Total PMV $6,026 $6,176 $6,760 $6,912 $6,977 $8,287 $8,481 $8,680 $8,883 $9,090 Less: Net Debt (2,125) (2,102) (1,906) (1,874) (1,897) (2,068) (2,302) (1,977) (2,233) (1,931) Less: Options (18) (19) (26) (27) (27) (37) (36) (41) (40) (45) Equity PMV $3,884 $4,055 $4,829 $5,011 $5,053 $6,182 $6,143 $6,662 $6,610 $7,115 Shares Outstanding (year-end) PMV per share $52 $64 $64 $69 $68 $74 Current Discount to PMV (31%) (7%) (8%) 1% (0%) 7% Source: Company reports, Gabelli & Company estimates Lamar Advertising - Company Price Performance Source: Public data. As of (3 years back) xx had a xx recommendation. I, Brett Harriss, the Research Analyst who prepared this report, hereby certify that the views expressed in this report accurately reflect the analyst s personal views about the subject companies and their securities. The Research Analyst has not been, is not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Brett Harriss (914) Gabelli & Company 2016 Important Disclosures ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY TEL (914) FAX (914) Gabelli & Company is the marketing name for the registered broker dealer G.research, LLC, which was formerly known as G.research, Inc., Gabelli & Company ("we" or "us") attempts to provide timely, valueadded insights into companies or industry dynamics for institutional investors. Our research reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated. We do not undertake to "upgrade" or "downgrade" ratings after publishing a report. We currently have reports on 573 companies, of which 50%, 33%, 3% and 14% have a recommendation of buy, hold, sell or non-rated, respectively. The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%. Ratings Analysts ratings are largely (but not always) determined by our private market value, or PMV methodology. Our basic goal is to understand in absolute terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts that could encourage those private market values to surface. A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two to occur. A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other factors at work. A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value. Economic or sector risk could also be increasing. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. As of June 30, 2016, our affiliates beneficially own on behalf of their investment advisory clients or otherwise less than 1% of LAMR. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. The analyst, who wrote this report, or members of her household, owns no shares of the above mentioned companies. -8-