Initiation of coverage
oOH!media (OML) is a leader in the Australasian outdoor advertising market and, following last year's purchase of Adshel, now accounts for approximately 47% of total industry revenues. The company is long established, has a stable and experienced management team, and a runway of near-term growth opportunities. While near-term industry growth rates are unlikely to match those of the last five years, further modest growth seems likely.
Leverage to cycle, digital conversion
OML profits are leveraged to overall advertising spending and the conversion of static billboards to digital signs. Zenith Media predicts that overall ad spend will increase by 4.4% in 2019. OML has a plan to steadily increase the number of large-format digital panels in use over the year, which should also help to deliver growth.
Risks and catalysts
Risks associated with investing in OML include but are not limited to:
- a slowing economy, resulting in weakness in advertising expenditure generally;
- a change in advertiser preferences away from outdoor media;
- the loss of a major contract to manage and operate billboards for a major landlord; and
- severe price discounting by a competitor.
Potential re-rating catalysts include but are not limited to:
- a period of strong economic growth, leading to strong advertising expenditure generally;
- continuing strong growth in advertiser demand for outdoor advertising, especially digital panels;
- the win of a major new contract; and
- the major competitor choosing yield over volume growth, resulting in improving industry margins.
oOH!media (OML) offers investors exposure to the Australian advertising cycle and growth in the outdoor media segment. Outdoor advertising has grown by an average compound growth rate of 9% over the past five years.
As OML shares trade below our 12-month share price target, we initiate coverage with an Add recommendation.
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