Small Caps | Aug 15 2017
This story features OOH!MEDIA LIMITED. For more info SHARE ANALYSIS: OML
The market reacted positively to oOh!media's first half and brokers expect 2017 will reveal meaningful growth.
-Dominant position suggests potential cannibalisation of returns from competitor digitisation less likely
-Digital volume growth outstripping digital revenue growth
-Portfolio likely to outperform the broader media sector
By Eva Brocklehurst
There was a positive reaction to oOh!media's ((OML)) first half result, which was driven by revenue growth of 18%, of which more than half was organic. As there are no material contracts to be re-tendered over the coming half, brokers expect 2017 should be another year of meaningful growth, driven by annualisation of acquisitions, digital conversion and the continued penetration of advertising in the outdoor sector.
First half underlying adjusted net profit was up 33.6% and underlying operating earnings (EBITDA) up 27%. The company declared an interim dividend of 4.5c, fully franked, up 12.5%. In the first half the company converted 17 large format billboards and 23 large retail screens to digital formats which is expected to assist revenue in the future.
Revenue from digital continues to climb and while the absolute returns may not be as significant from here on, Ord Minnett suspects the metrics will continue to be accretive. Additionally, the company's dominant position in the category should mean that potential cannibalisation of returns from competitor digitisation is less of an issue. Gearing rose in the period but, given the skew in earnings to the second half, the broker believes there is the potential for this metric to reduce.
The result was also well received by Canaccord Genuity, who notes costs lower than forecast. One of the main questions leading into the result was the mismatch in the growth of digital roadside billboards, which are outstripping digital revenue growth, and the broker asserts management appears unwilling to fully engage the question of yield trends, occupancy and returns on these assets.
Management has signalled that it has visibility over 60% of its second half revenue target, which reflects a shortening of advertising markets as digital revenues grow. On the broker's forecasts, this suggests $86m in revenue is still to be written in the second half and likely to be concentrated in the final quarter when sector expenditure is usually at its strongest.
Canaccord Genuity, not one of the eight stockbrokers monitored daily on the FNArena database, retains a Hold rating and raises the target to $4.55 from $4.25.
Deutsche Bank agrees there was little detail on the impact on yield from the rolling out of digital inventory, but remains encouraged by the continued growth in the underlying operating earnings margin. The broker notes the required growth in the second half – around 20% – is lower than the first half growth rate of 27%.
The broker expects the out-of-home, or outdoor, segment will continue to grow as a medium and the company is its top pick. Any further sector consolidation is expected to be an additional catalyst and the company is well-positioned to participate, given its strong balance sheet.
Subdued Media Sector
Macquarie believes it was a good first half result in the context of a subdued broader advertising environment. The outdoor segment continues to take significant share as a medium and the company is participating via its leading positions and expanding digital platform.
The broker believes the correct investment in data and analytics, as well as systems, should mean the company can deliver increasingly targeted outcomes to advertisers. If successful, this could extend the growth path, differentiate the product offering and provide an advantage in site acquisition and portfolio management.
While the most recent acquisition, ECN, is trailing Credit Suisse's expectations the company is performing well in other areas and has options around further digitisation to support the outlook. The broker agrees this is is a robust result for a slowing out-of-home market.
While second half bookings are marginally lower than the preceding year, the shortening nature of the advertising market blurs the line between earnings risk and a naturally declining visibility, the broker suggests.
Credit Suisse now forecasts average revenue per digital panel to be down -13% on 2016 levels through a combination of mix and decline in like-for-like sales. Combined with higher operating expenditure, this means a reduction of -9-11% to 2018-19 forecasts for earnings per share.
The broker agrees that while system growth has softened, the outdoor segment is likely to outperform the broader media sector and, within this space, the company's portfolio has the best near-term outlook.
There are four Buy ratings on the database. The consensus target is $4.90, suggesting 8.4% upside to the last share price. Targets range from $4.65 (Ord Minnett) to $5.30 (Deutsche Bank).
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