oOh!Media: Flying blind

About the author:

Ivor Ries
Author name:
By Ivor Ries
Job title:
Senior Analyst
Date posted:
25 February 2020, 2:25 PM
Sectors Covered:
Information Technology, Online Media

  • oOh!Media (ASX:OML) has provided cautious earnings guidance for FY20 – tipping underlying EBITDA growth between 1% and 12% – after delivering an FY19 result that was slightly better than expected.
  • The outdoor advertising market remains tough, with few advertisers willing to commit to longer-term contracts. OML has little revenue visibility beyond the next few weeks.
  • The company has pared back operating costs but is still investing in capacity expansion. If and when economic conditions improve, OML is well placed to catch the revenue growth.
  • Our DCF valuation, which sets the price target, has lifted marginally to A$3.79, up from A$3.76. We maintain an ADD recommendation.

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Worst is over, possibly, but big tenders loom

oOh!Media (ASX:OML) came through the worst outdoor advertising market in a decade to produce a result that was slightly better than expected. While market conditions have stabilised the company will have to re-tender for two of its biggest contracts – Sydney Trains and Melbourne Airport – this year.

The tender process is bound to raise investor concerns, especially given the size of the potential margin loss.

While battening down the hatches might seem a more sensible strategy, OML continues to invest aggressively in capacity expansion.

If and when demand returns to the outdoor sector, OML will be well-placed to scoop up incremental industry revenue growth.

Changes to forecasts, valuation

Changes to our forecasts reflect:

  1. Guidance from the company as to underlying EBITDA (pre AASB16) for FY20
  2. Assumptions as to the lease cost schedule over the subsequent years

Changes in reported earnings are mostly non-cash items and thus have little impact on free cash flows. Changes to EPS forecasts should be disregarded as they do not give a true reflection of earnings. Our DCF valuation, which drives our share price target, increases slightly (Morgans clients can login to view detailed reports and price targets).

Risks and catalysts

Risks associated with investing in OML include but are not limited to:

  1. A further slowing in advertising expenditure
  2. A shift in advertiser preferences away from outdoor media
  3. The loss of a major contract
  4. Severe price discounting by a competitor

Potential re-rating catalysts include:

  1. A strong rebound in advertising expenditure generally
  2. Continuing strong growth in advertiser demand for outdoor advertising, especially digital panels
  3. The win of a major new contract
  4. The major competitor choosing yield over volume growth, improving industry margins

Investment view

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 9.0% over the past five years. As OML shares trade below our 12-month share price target, we rate the stock as an ADD for long-term investors.

More information

Morgans clients can login to view our detailed report and share price target for oOh!Media (OML). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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