APN Outdoor Group (APO)

26 June 2018 INTERNAL ONLY RECOMMENDATIONS Rating HOLD Risk Medium Price Target $6.70 Share Price $6.45 SNAPSHOT Monthly Turnover $323.7mn Market Cap $1,069mn Shares Issued 167.0mn 52-Week High $6.70 52-Week Low $4.07 Sector Consumer Discretionary BUSINESS DESCRIPTION APN Outdoor (APO) is an outdoor advertising operator with assets across the billboard (both static and digital), transit, rail and airport segments. The company has operations throughout Australia and New Zealand. APN Outdoor was established in 2004 and listed on the ASX in 2014. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA + 613 9602 9379 nburgess@baillieuholst.com.au Piers Flanagan + 613 9282 8127 pflanagan@baillieuholst.com.au Nick Caley + 613 9602 9283 ncaley@baillieuholst.com.au Disclosure The author owns no shares in APO. Baillieu Holst Ltd acted as Underwriter for QMS and earned fees in relation to that activity in the past 12 months. APN Outdoor Group (APO) COMPANY REPORT Un signe des temps Overall: APO looks set to be acquired by JCDecaux (JCD) for a cash price of $6.70 per share via a Scheme Implementation Deed. HOLD maintained. Offer: APO has entered into a Scheme Implementation Deed with JCD where JCD will acquire 100% of APO at a cash price of $6.70 per share. This is an 18% premium to the undisturbed closing price on 19 June, a 26% premium to the 3-month VWAP and a 34% premium to the 6-month VWAP. The price represents an EV/EBITDA multiple of 12.9x. APO also intends to declare a fully franked special dividend of up to 30cps just prior to the implementation of the Scheme. Next steps: The Scheme is subject to approval from the ACCC, FIRB and the NZ Overseas Investment Office. Shareholders will have the opportunity to vote on the Scheme at a shareholder meeting, with the Scheme is expected to be implemented in 4Q18. Investment view: We retain a HOLD rating, believing that the Scheme is likely to be approved by shareholders and that the acquisition is likely to proceed. We set our Price Target equal to the offer of $6.70 per share. Key risks to our PT include a materially higher bid (unlikely in our view) or JCD s proposal not proceeding due to regulatory or any other reason. Implications for QMS: We note ooh! Media s (OML) agreement to acquire the Adshel business from HT&E (HT1). Should both deals proceed, this will leave QMS Media (QMS) as the third player, with substantially less market share than its two merged peers. Post the proposed deals proceeding, we acknowledge there does not appear to be an obvious suitor for QMS and potential corporate appeal was a key plank of our positive investment thesis. That said, we maintain a BUY rating on QMS and $1.40 price target, due to: i) there remain various regulatory approvals for both of the proposed deals to proceed with a number of potential outcomes (either deal not proceeding, mandated divestments, etc.); and ii) outdoor advertising in Australia and New Zealand remains attractive, in our view, and there is potential for ongoing consolidation by broader media participants or other offshore players. More broadly, QMS has a high quality portfolio of digital-focused assets and market leadership in the growing New Zealand market. Industry performance remains supportive (8.7% growth in Australia 1Q18) and trends continue to favour QMS s portfolio of outdoor advertising assets, with strong growth in digital (QMS is overweight) and roadside billboards (overweight). INVESTMENT SUMMARY Year End: 31 December 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn 331 343 357 373 387 EBITDA $mn 86.7 90.3 94.7 98.6 103.0 EBIT $mn 73.9 75.1 77.7 81.2 86.2 Reported Profit $mn 48.6 44.0 50.7 53.5 58.4 Adjusted Profit $mn 51.8 53.0 54.2 57.0 61.9 EPS (Reported) 29.1 26.3 30.4 32.1 35.0 EPS (Adjusted) 31.0 31.7 32.5 34.2 37.1 EPS Growth % 19.4 2.2 2.7 5.2 8.5 PER (Reported) x 22.2 24.5 21.2 20.1 18.4 PER (Adjusted) x 20.8 20.3 19.8 18.8 17.4 Dividend 19.0 19.2 19.5 20.5 22.5 Yield % 2.9 3.0 3.0 3.2 3.5 Franking % 100 100 100 100 100 Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 1

Financial summary Code: APO Rating: HOLD Analyst: Nicolas Burgess Price Target: $6.70 Date: 26 June, 2018 Upside/downside: 4.0% Share Price: $6.45 Valuation: $5.40 Market Capitalisation: $1077m Valuation method: DCF / EV/EBITDA Year End: 31 December Risk: Medium PROFIT & LOSS (A$m) FY16A FY17A FY18E FY19E FY20E EARNINGS FY16A FY17A FY18E FY19E FY20E Revenue 330.9 342.9 356.7 373.0 387.2 EPS - Underling cash (diluted) 31.0 31.7 32.5 34.2 37.1 COGS -203.3-209.2-215.1-224.7-232.6 EPS Growth - underlying 19.4% 2.2% 2.7% 5.2% 8.5% Gross profit 127.6 133.7 141.6 148.3 154.6 EPS - Reported (diluted) 29.1 26.3 30.4 32.1 35.0 Operating costs -40.9-43.4-46.9-49.7-51.7 Diluted shares (m) 167 167 167 167 167 EBITDA 86.7 90.3 94.7 98.6 103.0 DPS (cps) 19.0 19.2 19.5 20.5 22.5 Depreciation -8.8-11.0-12.0-12.4-11.7 Payout Ratio 61% 61% 60% 60% 61% EBITA 77.9 79.3 82.7 86.2 91.2 Franking 100% 100% 100% 100% 100% Amortisation -4.0-4.3-5.0-5.0-5.0 EBIT 73.9 75.1 77.7 81.2 86.2 VALUATION FY16A FY17A FY18E FY19E FY20E Net interest -3.2-4.2-5.3-4.8-2.9 Underlying P/E (x) 20.8 20.3 19.8 18.8 17.4 PBT 69.6 62.6 72.4 76.4 83.4 EV/EBITDA (x) 13.4 13.0 12.3 11.5 10.8 Tax -21.1-18.7-21.7-22.9-25.0 EV/EBITA (x) 14.9 14.8 14.1 13.2 12.1 Minorities 0.0 0.0 0.0 0.0 0.0 Dividend Yield (%) 2.9% 3.0% 3.0% 3.2% 3.5% Reported NPAT 48.6 44.0 50.7 53.5 58.4 Price/Book (x) 4.0 3.9 3.6 3.3 3.1 Price/NTA (x) 84.5 45.2 21.2 13.7 10.0 Amortisation of intangibles 3.2 0.8 3.5 3.5 3.5 Price/FCF 28.7 46.4 23.2 16.8 15.8 Non-recurring items (net tax) 1.1 8.2 0.0 0.0 0.0 Underlying profit 51.8 53.0 54.2 57.0 61.9 GROWTH FY16A FY17A FY18E FY19E FY20E Revenue growth 10.0% 3.6% 4.0% 4.6% 3.8% Operating cost growth -1.4% 6.1% 8.0% 6.0% 4.0% BALANCE SHEET (A$m) FY16A FY17A FY18E FY19E FY20E EBITDA growth 18.3% 4.2% 4.9% 4.1% 4.4% Assets PBT growth 16.9% -10.0% 15.6% 5.5% 9.0% Cash 19.0 16.9 19.7 47.5 74.8 Underlying NPAT growth 17.0% -9.5% 15.3% 5.5% 9.0% Receivables 69.2 63.8 71.3 74.6 77.4 Reported NPAT growth 19.6% 2.3% 2.3% 5.2% 8.5% PPE 96.6 106.8 121.2 114.3 108.1 MARGINS & RETURNS FY16A FY17A FY18E FY19E FY20E Intangibles 256.4 255.5 250.5 245.5 240.5 Gross margin 38.6% 39.0% 39.7% 39.8% 39.9% Tax assets 0.4 0.0 0.0 0.0 0.0 EBITDA Margin 26.2% 26.3% 26.6% 26.4% 26.6% Other assets 9.7 10.3 10.3 10.3 10.3 EBITA Margin 23.6% 23.1% 23.2% 23.1% 23.6% Total Assets 451.4 453.3 473.0 492.2 511.1 NPBT Margin 21.0% 18.3% 20.3% 20.5% 21.5% Liabilities ROIC 16.5% 15.3% 15.2% 15.7% 16.8% Payables 30.6 23.2 35.7 37.3 38.7 ROE 20.0% 19.3% 18.7% 18.2% 18.4% Borrowings 102.7 114.8 104.8 104.8 104.8 ROA 18.5% 17.5% 17.9% 17.9% 18.2% Provisions 3.4 2.1 2.1 2.1 2.1 Effective Tax Rate 30.3% 29.8% 30.0% 30.0% 30.0% Tax liabilities 37.1 25.3 25.3 25.3 25.3 GEARING FY16A FY17A FY18E FY19E FY20E Other liabilities 8.4 8.5 4.1-1.2-8.1 Net Debt / (cash) (A$m) 83.7 97.9 85.1 57.3 30.0 Total Liabilities 182.2 174.0 171.9 168.3 162.8 Enterprise value 1161 1175 1162 1135 1107 Net Debt/Equity+Equity (%) 23.7% 26.0% 22.0% 15.0% 7.9% Equity EBITDA/Net interest 27.5 21.6 18.0 20.6 35.7 Share capital 222.3 222.3 222.3 222.3 222.3 Retained earnings 41.3 53.4 75.1 97.9 122.3 OPERATIONAL DATA (A$M) FY16A FY17A FY18E FY19E FY20E Other equity 5.6 3.7 3.7 3.7 3.7 Revenue by type: Total shareholders equity 269.2 279.4 301.1 323.9 348.3 Billboard Digital 51.7 69.1 88.4 94.1 100.1 Billboard Static 109.1 107.6 112.0 114.8 118.0 BV per share (cps) 161.1 167.0 180.7 194.4 209.0 Transit 99.5 100.2 85.2 89.4 92.1 NTA per share (cps) 7.6 14.3 30.4 47.1 64.7 Rail 26.8 25.4 26.9 28.3 29.1 Airport 43.8 40.6 44.3 46.5 47.9 CASH FLOW (A$M) FY16A FY17A FY18E FY19E FY20E Group 330.9 342.9 356.7 373.0 387.2 Cash at Start 9.0 4.4 2.3 5.1 32.9 Cash from from ops 66.3 48.0 72.6 69.3 73.6 Revenue growth % Capex -28.8-24.8-26.4-5.5-5.5 Billboard Digital 61.6% 33.5% 28.0% 6.4% 6.4% Free cash flow 37.5 23.2 46.2 63.8 68.1 Billboard Static -2.5% -1.3% 4.0% 2.5% 2.8% Free cash flow per share (cps) 22.5 13.9 27.7 38.3 40.9 Transit -1.5% 0.7% -15.0% 5.0% 3.0% Cash flow from investing -63.7-29.3-29.3-8.5-7.4 Rail 17.5% -5.2% 6.0% 5.0% 3.0% Cash flow from financing -7.3-20.5-40.6-33.0-38.9 Airport 32.3% -7.3% 9.0% 5.0% 3.0% Cash at end 4.4 2.3 5.1 32.9 60.2 Group 10.0% 3.6% 4.0% 4.6% 3.8% Number of digital billboards 87 125 147 152 157 FCF / Underlying cash NPAT 77% 53% 91% 119% 117% Number of static billboards 2878 2840 2818 2813 2808 Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 2

Un signe des temps Overall: APO looks set to be acquired by JCDecaux (JCD) for a cash price of $6.70 per share via a Scheme Implementation Deed. Offer: APO has entered into a Scheme Implementation Deed with JCD where JCD will acquire 100% of APO at a cash price of $6.70 per share. This is an 18% premium to the undisturbed closing price on 19 June, a 26% premium to the 3-month VWAP and a 34% premium to the 6-month VWAP. The price represents an EV/EBITDA multiple of 12.9x. APO also intends to declare a fully franked special dividend of up to 30cps just prior to the implementation of the Scheme, including up to 13cps franking credits attached. Next steps: The Scheme is subject to approval from the ACCC, FIRB and the NZ Overseas Investment Office. Shareholders will have the opportunity to vote on the Scheme at a shareholder meeting, with the Scheme is expected to be implemented in 4Q18. FIG.1: OUTDOOR ADVERTISING SECTOR ESTIMATED REVENUE SHARE TODAY 50% 45% 40% 35% 30% 25% 20% 32% 26% 15% 10% 5% 12% 12% 12% 6% 0% OML APO QMS Adshel JCDeceaux Other Source: Outdoor Media Association, Company Reports, Baillieu Holst estimates Investment view: We retain a HOLD rating, believing that the Scheme is likely to be approved by shareholders and that the acquisition is likely to proceed. We set our Price Target equal to the offer of $6.70 per share. Key risks to our PT include a materially higher bid (unlikely in our view) or JCD s proposal not proceeding due to regulatory or any other reason. Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 3

FIG.2: OUTDOOR ADVERTISING SECTOR ESTIMATED REVENUE SHARE POST PROPOSED ACQUISITIONS 50% 45% 44% 40% 38% 35% 30% 25% 20% 15% 12% 10% 5% 0% OML / Adshel APO / JCD QMS Other 6% Source: Outdoor Media Association, Company Reports, Baillieu Holst estimates Implications for QMS Media (BUY, $1.40 Target Price) We note ooh! Media s (OML) agreement to acquire the Adshel asset from HT&E (HT1). Should both deals proceed, this will leave QMS Media (QMS) as the third player, with substantially less market share than its two merged peers. Post the proposed deals proceeding, we also acknowledge there does not appear to be an obvious suitor for QMS and potential corporate appeal was a key plank of our positive investment thesis. That said, we maintain a BUY rating on QMS and $1.40 price target, due to: i) there remain various regulatory approvals for both of the proposed deals to proceed with various potential outcomes (either deal not proceeding, mandated divestments, etc); and ii) outdoor advertising in Australia and New Zealand remains attractive, in our view, and there is potential for ongoing consolidation by broader media participants or other offshore players. More broadly, QMS has a high quality portfolio of digital-focused assets and market leadership in the growing New Zealand market. Industry performance remains supportive (8.7% growth in Australia 1Q18) and trends continue to favour QMS s portfolio of outdoor advertising assets, with strong growth in digital (QMS is overweight) and roadside billboards (overweight). Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 4

Appendix FIG.3: LONG TERM MOMENTUM INDICATORS Source: Iress FIG.4: SHORT TERM MOMENTUM INDICATORS Source: Iress Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 5

This document has been prepared and issued by: Baillieu Holst Ltd ABN 74 006 519 393 Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least 10-15 percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least 10-15 percent from the current share price over the next 12 months. Baillieu Holst Analysts stock ratings distribution as of 05 June 2018: Buy: 65% Hold: 34% Sell: 1% Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. 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Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. 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Baillieu Holst Ltd ABN 74 006 519 393 Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd www.baillieuholst.com.au Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone +61 3 9602 9222 Facsimile +61 3 9602 2350 Email melbourne@baillieuholst.com.au Adelaide Office Address Ground Floor, 226 Greenhill Road, Eastwood SA 5063 Postal PO Box 171 Fullarton SA 5063 Phone +61 8 7074 8400 Facsimile +61 8 8362 3942 Email adelaide@baillieuholst.com.au Bendigo Office Address Level 1, 10-16 Forest Street Bendigo, VIC 3550 Postal PO Box 84 Bendigo, VIC 3552 Phone +61 3 4433 3400 Facsimile +61 3 4433 3430 Email bendigo@baillieuholst.com.au Geelong Office Address 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone +61 3 5229 4637 Facsimile +61 3 4229 4142 Email geelong@baillieuholst.com.au Gold Coast Office Address Suite 202 Level 2, Eastside Building 6 Waterfront Place, Robina QLD 4226 Phone +61 7 5628 2670 Facsimile +61 7 5677 0258 Email goldcoast@baillieuholst.com.au Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone +61 2 4037 3500 Facsimile +61 2 4037 3511 Email newcastle@baillieuholst.com.au Perth Office Address Level 9, 216 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone +61 8 6141 9450 Facsimile +61 8 6141 9499 Email perth@baillieuholst.com.au Sydney Office Address Level 40, 259 George Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone +61 2 9250 8900 Facsimile +61 2 9247 4092 Email sydney@baillieuholst.com.au Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Page 6