Small Caps | Dec 14 2020
This story features OOH!MEDIA LIMITED. For more info SHARE ANALYSIS: OML
Outdoor advertising expenditure is recovering and a rebound in domestic travel is expected to provide impetus for oOh!media, although the share price may be already factoring in the improvement
-Performing better than peers during November, December
-Reduced costs and further digital penetration could prove supportive
-Has the stock already priced in the recovery?
By Eva Brocklehurst
As Australians opt for local holidays and road travel and domestic air traffic rebound from a virtual standstill, the advertising billboards of oOh!media ((OML)) should feature more prominently.
The business is significantly leveraged to a recovery in transport and airport activity and the company has signalled audiences are recovering across all formats, with media expenditure following suit.
Revenue declined -28-34% in the fourth quarter of 2020, much less than the third quarter decline of -43%. Revenue is down -11-18% in those formats where the audience is approaching normal, such as street furniture, road and retail.
Canaccord Genuity assesses oOh!media has significantly outperformed in the Australian outdoor segment and the revenue base of the latter three formats is probably now back around 85% of 2019 levels.
What this means is that a substantial revenue recovery will need to come from advertising in airports, offices and public transport. The broker suggests the latter two are strongly correlated, while there are modest signs from airport data that since interstate travel restrictions were lifted, traffic is rapidly returning.
Credit Suisse is more convinced about its Outperform rating, highlighting the company performed better than average in November and December, based on feedback from media buyers, forecasting 2021 revenues at 87% of pre-pandemic levels, with 100% achieved in 2022 based on current momentum.
Revenue guidance for 2020 is $420-430m, which is a little softer than Macquarie anticipated and the miss has stemmed from continued weakness in the air, rail and office categories. While 2020 underlying operating earnings (no guidance provided) are forecast at around $86m, down -38%, the broker notes incorporates a material improvement in the second half.
On the positive side, Macquarie emphasises the company's ability to flex its cost base while being leveraged to a recovery in airport and office advertising volumes. The broker estimates oOh!media will have 1.5x net debt/operating earnings in 2020 which provides sufficient room against covenants.
Nevertheless, Ord Minnett is not convinced, finding the share price is benefiting from value rotation and, while increasing 2021 earnings forecasts because of lower capital expenditure on cost reductions, the stock is trading at a premium to valuation.
The broker acknowledges the pace of the recovery in outdoor advertising could be faster in Australia compared with competitors in Europe, China and the US because of the better management of the pandemic.
Admittedly, reduced fixed and variable costs and increased digital penetration may allow the share price to continue to rally, yet Ord Minnett suspects it is unlikely all segments will remain resilient, forecasting declines of -34.4% and -20.7% for public transport and road revenue, respectively, in 2020. Retail is expected to decline -31.6%.
Canaccord Genuity flags the $650m in revenue recorded in 2019 as somewhat of a target, noting the company expects $54m in rent savings – which falls straight to the EBITDA line. On the broker's modelling oOh!media will return to 2019 earnings around mid 2023.
The broker, not one of the seven stockbrokers monitored daily on the FNArena database, has a Hold rating with $1.75 target. The database has two Buy ratings and one Hold (Ord Minnett). The consensus target is $2.06, suggesting 13.8% upside to the last share price.
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