In this post, I will discuss what I am doing in one of my actively managed investment accounts (“the Fund Fund”).
As a reminder, most of the prior posts about this account (which is really just a small Roth IRA that I am tracking more closely than my other investments) are located on this page.
The Fun Fund was down (4.95%) in the third quarter of 2023. This compares to (3.3%) for SPY, (2.28%) for RPV, (Up?) 2.28% for QVAL, (7.83%) for RSP, and (.31%) for BRKA. This is…how we win?
Making Moves
Last quarter I started buying Lamar Advertising Co. in this account. I have followed it for a long time. I previously bought some for another account during the COVID crash in 2020.
By way of their Boston Omaha annual letters, Adam Petersen and Alex Rozek really helped really form up my thoughts about billboards/outdoor advertising as an industry. I recommend their annual letters.
Simply stated, billboards have barriers to entry. You can’t just throw them up as you like without encountering some organized resistance. I do have some concerns about supply with the increased roll out of digital faces (which seemingly can explode the number of available ad slots), but it’s not like you can throw up billboards as readily as most other types of real estate.
I prefer $LAMR to other options for a few reasons. First, they focus on less competitive markets (i.e., not the “gateway cities.”). Lamar also doesn’t have as much exposure to the type of display advertising in subways or at airports as their competitors. It seems like the government takes too much of the economics in these situations.
Second, Lamar is controlled by the founding (kind of) Reilly family. Sean Reilly is the CEO. He’s an interesting character. Went to law school at Harvard but transferred back to LSU to finish up and eventually joined the family bidness. Search him on Youtube and you can find some interesting talks.
He seems to talk about capital allocation very rationally. For example, I’ve heard him go through his analysis of uses for fund and discuss buying out leases of land under their boards as kind of an opportunity cost versus installing more digital faces or buying tuck in companies. I also find their historical practice of making special dividends as evidence of considerate capital allocation and a deviation from sort of normal inertia in REIT land.
They fact that we have apparently good capital allocators (or at least people who have some incentive to care about it) in charge is highly relevant because billboards as an industry are still fairly unconsolidated. The industry should consolidate more over time due to scale advantages. Stuff like the scale advantages allowing for use of greater technology including links to mobile devices (e.g., the ads on the big screen can be targeted more based on the mobile phones stuck in traffic) and the ability to sell to bigger national advertisers. Lamar has shown some discipline and a track record of being an effective consolidator.
Third, and sort of related, Lamar has a decentralized operating management approach which recognizes that employees/managers need to have ownership in the business and their own jobs. They delegate much of the decisions to the managers in the local markets. This may be a product of owners operating the overall bidness and also should help facilitate acquisitions and “integration” to fuel continued successful consolidation of the industry.
The business is economically sensitive and obviously REITs are getting hammered by interest rates (and other forces), so I’m not calling a bottom or anything. I do plan to accumulate a relatively large position in Lamar across my accounts. I would get pretty aggressive at maybe 30% lower prices which would be around 10x consensus EBITDA. This has traditionally been sort of the base rate target multiple for Lamar’s own acquisitions of smaller players (the fact that they have that hurdle and have published it supports my inference that they have exhibited reasoned capital allocation). Getting the benefits of the bigger scaled up organization for the same price seems a nice touchstone that I’m getting a good value.