Market analysts are generally upbeat about oOh!media capital raising, one part of a string of measures to deal with fallout from the pandemic, despite the dilution to shareholders by increasing the number of shares to 558 million from 242 million.
The cash from the 53 cents a share raising will reduce net debt for the outdoor advertising specialist to $194 million from $355 million.
The company is also slashing capital expenditure and is hitting costs hard to meet a billboard advertising slump.
Analysts say the price at 53 cents a share is good value and investors, to maintain their position, should take up their entitlements.
The shares last traded, when they came out of a halt on Friday, a $0.605. That gives the company a market capitalisation of $146.6 million.
Brendon Cook, the CEO, and his team, know what it takes to survive in a market downturn and then be prepared for the upswing.
“While the measures may look like overkill, they will ensure that the company survives regardless of the depth of the FY20 recession,” write analysts at stockbroker Morgans in a note to clients.
Morgans has revalued oOh!media to $1.15 a share from $3.79. “We recommend that existing shareholders take up entitlements to the new issue,” the analysts say.
At Morningstar, the oOh!media fair value estimate has been cut by 60%, or $1.95 per share, to $1.25.
However, Brian Han, senior analyst at Morningstar, recommends investors support oOh!media's capital raising.
“If our view, that COVID-19 will eventually be contained this year, proves correct the upside in oOh!media shares is substantial, given its dominant position in the structurally solid outdoor advertising industry,” says Han.
He says the negative impact on advertising is likely accelerating, particularly with an increasing portion of the economy effectively in shutdown mode.
“Uncertainty over the duration and quantum of the coronavirus damage on oOh!media is the reason for the big 37% discount the new shares are being issued at ($0.53 per share), relative to the already depressed stock price,” says Han..
“Drastic government actions to tackle the spread of the coronavirus mean an increasing chunk of the economy is going into shutdown.
“This is a dire situation for the no-moat group, whose business depends entirely on advertising to people moving around outdoors and in crowded areas.”
Credit Suisse calls the raising a bitter but ultimately necessary pill to swallow.
The investment bank points to the deep discount in the raising, a more than doubling of shares on issue.
"OML’s equity raise removes near term liquidity risk and provides welcome headroom relative to covenants in order to navigate what is likely to be a choppy environment in coming months," write the analysts in a note.
Brendon Cook, who recently announced his departure from oOh!media after 30 years, has agreed to stay on as CEO to help the company through the fallout from the pandemic.
“With this national crisis disrupting companies in every sector of the economy, it’s really not the time to be changing CEO," Cook told AdNews.
"Our focus has to be on adapting quickly, while looking after our staff and all our other stakeholders during what is a very difficult period for everyone.
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