oOh!media, as the leading Australian light in the outdoor market, has come a long way since its share price was punished in May this year.
Then the company announced a “softening” of the advertising market. Its shares dropped below $1 at one stage before closing down 24% to $1.24.
Now its shares are trading at $1.46 after oOh!media reported a 7% jump in revenue to $296.6 million for the half year to June.
And indications are that there are better results ahead, including a series of contract wins and a strengthening market.
Part of the growth is the idea that one part of the media industry is eating the lunch of another.
That outdoor media in Australia is gaining a greater share of the ad spend pie at the expense of linear television.
“The SMI (Standard Media Index) trend (for outdoor) to June at 15% growth year-on-year compares to television which is back 15% and radio back 8%,” says oOh! CEO Cathy O’Connor.
oOh!Media's market capitalisation as of yesterday was $781.2 million. ASX-listed media group Seven West Media was $590.4 million.
O’Connor told an analyst briefing that out-of-home is being viewed as a safe bet.
“A safe bet in terms of mass audiences which aren't being fragmented,” she says.
“And I think increasingly a very cost efficient way to a mass reach audience.
“The free-to-air television market is three times the size of the out-of home-market, so a little bit of disruption goes a long way there.
“And we increasingly see the 60% of the ad market that is pure digital as the obvious place where out-of-home will do a better job of participating and competing, given the advent of new (outdoor) measurement with MOVE 2.0.
“So there are a range of things that underpin our optimism.”
Market analysts are also optimistic about oOh!media.
“OML (oOh!media), and the OOH industry more broadly, continue to monetise their assets particularly as other traditional formats face declining audiences,” write analysts at Macquarie in a note to clients.
“OML valuation is attractive relative to global peers. The key risk for OML remains contract renewals at lower-than-expected margins. Retain Outperform.”
The analysts point to the June half EBITDA (earnings before interest, taxes, depreciation and amortisation) of $49.6 million, which was 14% above Macquarie’s forecast and 16% above market consensus.
“Strong road performance and cost-out drove the beat,” the analysts say.
“OML remains a structural growth opportunity within traditional media with exposure to an improving OOH market.”
Macquarie argues that 18%-20% is a reasonable benchmark for OOH penetration rate of total media. In 2023 it was 14%, up from 11.7% the year before.
Morningstar has lifted its fair value estimate for oOh!media by 7% to $1.60 per share.
The upgrade was due to the quality of the revenue result and likely lower capital spend than anticipated.
“The 7% growth in 2023 first-half revenue to $297 million smashed management's despondent prior guidance of a low-single-digit increase, at best (on our interpretation),” says Brian Han, equities director at Morningstar.
“The composition was also solid. The only formats that did not post top-line growth were street/rail and locate, with the former down 3% due to QMS' new city of Sydney contract and the latter too small to stress over (3% of group revenue).
“The road/billboard format, the crown jewel of oOh media's portfolio, increased sales 12% and is now indisputably the group's largest unit at 35% of group revenue.”
And three new contracts were won, with annualised revenue totalling $30 million from mid-2024.
“According to management, renewal talks are progressing positively on the AUD 182 million revenue worth of concessions due to expire in 2023," says Han.
“We would not have expected management to say anything otherwise. As a famous US politician once said, this is a ‘known unknown’ risk investors must be aware of.
“And some of the concessions, especially the large ones amounting to $85 million in revenue, are likely to draw intense tender competition from others, with negative implications for margins.
“However, oOh! media is the market leader with a proven 90% success rate in concession renewals, and its credentials were again proved by the recent three new contract wins (Sydney Metro, Woollahra Council, Martin Place).”
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