Strong Start To 2015 For oOh!Media

This story features OOH!MEDIA LIMITED. For more info SHARE ANALYSIS: OML

-Digital adoption to fuel growth
-Broad national presence
-Dividend target in 2015
 

By Eva Brocklehurst

oOh!Media ((OML)) made a strong start to 2015, beating prospectus forecasts in its maiden result as a listed company. Outdoor media, in which the company operates, has bucked the trend seen in other advertising channels, delivering strong growth in a fragmenting media landscape.

JP Morgan expects returns will increase over the medium term. The company operates in an industry with high barriers to entry and constraints on supply. Moreover, Out-of-Home category is expected to benefit from the adoption of digital technologies, presenting new revenue opportunities. Increased yield and effectiveness come from the digital engagement. The market size is growing and its consumers are more interactive. Combine this with a national footprint and it means broad-based advertising campaigns can be launched as well as targeted advertising.

The company offers a relatively diverse exposure to the category, having a presence on roadside billboards, in retail and social precincts and at airports. The number of advertising sites as well as content is constrained by regulations so any changes can have an impact on the market structure and future earnings. Additionally, plans to convert a number of large format billboards to digital are dependent on relevant development approvals. Hence, oOh!media has focused initially on the retail and airport segments because of the proximity to purchases and the quicker regulatory process.

The next stage of the strategy is to roll out the large format digital panels on roads. This is expected to increase digital revenue to $80m in 2015 from $60m in 2014. Digital revenue would then increase its contribution to revenue to 30% from 23%. JP Morgan believes the digital strategy should ensure the company obtains double digit earnings growth over the next five years.

The broker has an Overweight rating and price target of $2.51 and notes the board intends to target a dividend pay-out ratio of 40-60% of pro forma 2015 adjusted profit. JP Morgan expects an 8c dividend in 2015, rising to 9c in 2016.

Macquarie is upbeat on the outlook and does not believe the current valuation is challenged. An Outperform rating and $2.70 target are maintained. The company is expected to spend over $30m during 2015 of which more than $26m is slated for growth opportunities. oOh!Media will continue to digitise its retail portfolio and ramp up investment in roadside.

Full year returns from the capital expenditure are likely to come in 2016. Returns will continue to lag investment in this manner, Macquarie maintains, providing a positive earnings driver beyond 2016. Capex is expected to remain elevated through to 2017. Macquarie forecasts dividends of 9c in both 2015 and 2016.

See also oOh!media Attracts Attention on January 30 2015.
 

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