Market analysts are upbeat about the prospects for oOh!Media and its ability to catch the rising wave as the economy lifts out of the pandemic.
Outdoor revenues are expected, based on past performance and the behaviour of markets overseas, to snap back quickly post lockdowns and rising vaccination rates.
And all eyes are on the December quarter, normally busy because of Christmas and summer sales but this year campaign deferrals are crowding the market. This is expected to give oOh!Media higher yields.
oOh!media, holding about 30% of the Australian market and 47% including New Zealand, last month posted a 23% lift in revenue to $251.6 million for the half year to June.
The company reported strong revenue recovery across key formats in Australia (Road, Retail and Street Furniture) and New Zealand. Road and New Zealand revenues performed ahead of pre COVID-19 levels.
And oOh! says advertisers were "less cautious" and returned quickly following the end of lockdowns.
Goldman Sachs analysts recently had a virtual meeting with management at the outdoor media company.
“We walked away incrementally positive on the outlook,” the analysts write in a note to clients.
“We remain bullish on OML (oOh!) and see it as one of the cleanest ways to play the domestic recovery trade given its direct leverage to economic recovery, a point that we believe pockets of the market are only now starting to grasp.”
In the call with Goldman Sachs, oOh!Media noted more responsiveness from its client base this year versus last year. People are generally more inclined to look through pandemic restrictions this time around.
And looking ahead, clients are willing and committed to paying for seasonally higher rates in the December quarter.
“Management generally noted they remain committed to the OOH sector and see significant growth ahead,” the analysts say.
“They noted that OOH partners well with all types of media and remains a very attractive medium, and that generally, in terms of consolidation, there are more cost synergies than revenue.”
Analysts at investment bank Jefferies view the out-of-home advertising industry in a positive light and in the long-term they believe it will gain a bigger share of the total market from other advertising media.
“We believe there has been a solid improvement in industry structure in the past seven years with the top three players now controlling 90% of revenues,” the analysts write.
“We do recognise however that the industry is highly leveraged to the cycle given the short nature of advertiser revenues and the longer-term nature of the cost base.
“In addition, intense industry rivalry around major contracts has detracted from an otherwise appealing industry in the past.”
Jefferies thinks it is likely that oOh! will recover most of the revenue lost during COVID as the ad cycle turns positive this current financial year.
Brain Han, senior equities analyst at Morningstar, says resilience of market sentiment during lockdowns in New South Wales and Victoria is encouraging.
“Booking cancellations are holding low to-date,” he writes in a note to clients.
He also detects advertiser FOMO (fear of missing out) for December quarter bookings.
“The confidence is not surprising, given the recovery in road, retail, street, and New Zealand formats (75% of group revenue) to pre-COVID-19 levels.”
However, he says investors need to be realistic about the potential impact of the current restrictions on people movement, the lifeblood of an outdoor advertising company.
Analysts at Canaccord Genuity: “The shame for the OOH segment is that Australia's current lockdowns have interrupted a compelling recovery story which saw the segment all but catch metro radio in terms of regaining 2019 revenues while being hampered by limited audiences in airports, offices, and railway stations.”
They say oOh!has been regarded as part of the "reopening trade" which could equally now be described as a "vaccination trade" as Australia's plan calls for less use of lockdowns so disruptive for all OOH businesses.
The analysts, using Apple's Mobility data, estimate that current "out-and-aboutness" in Australia is significantly higher than in the June quarter of 2020, which should provide support for oOh!’s revenue base.
Analysts at Macquarie say this time ad agencies and advertisers have been more measured in retaining their booked spend.
“OML indicated any campaign deferrals were typically pushed to 4Q, attracting a higher yield, which we view as a positive,” they write in a note.
The company is ready for lift-off, they write in a note to clients.
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