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oOh!media: Positive Signals

Australia | Apr 03 2023

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

This story has been re-published with the correct spelling of the company's name.

Goldman Sachs sees a brighter outlook for oOh!media based on positive industry trends.

-Goldman Sachs raises its target price for oOh!media  
-Key players incentivised to maintain a rational market
-Outdoor industry body targets strong revenue growth
-High-margin New Zealand contracts in focus 

By Mark Woodruff

In the first piece of research on oOh!media ((OML)) since the February reporting season, Goldman Sachs raises its target price by 12% to $1.90 and retains its Buy rating.

This more positive view follows meetings between the broker and other key A&NZ outdoor advertising players, as well as a review of upcoming contract tenders for the company.

oOh!media specialises in Out of Home (OOH) advertising, which is displayed on roadsides, bus exteriors, bus shelters, tram exteriors, shopping centres, airports, train stations and office tower foyers.

Following FY22 results that exceeded consensus expectations in February, the average 12-month target price for oOH!media of three covering brokers in the FNArena database, which excludes Goldman Sachs, increased to $1.80 from $1.57.

This average target price suggests just under 13% upside to the latest share price of $1.63.

Outside of the database, Canaccord Genuity had a Buy rating and $1.95 target and retained the company as its preferred pick in the Media sector.

At the time, Outperform-rated Macquarie raised its target by 30% to $2.49 on stronger-than-expected Road segment revenue and noted the company was proving more resilient than many peers in the tough macroeconomic backdrop.

The more cautious Ord Minnett (target $1.50) retained its Hold rating and noted the company’s business hinges on its portfolio of leasehold concessions. The primary risk is some concessions either may not be renewed or are renegotiated on less attractive terms.

This broker pointed out 32% of oOH!media’s group revenue was attached to concessions set to expire in 2023, and predicted a volatile news year that would test management’s resolve to optimise margins.

Since Cathy O’Connor took on the CEO role at the beginning of 2021, Ord Minnett has noted a heightened focus on maximising concession economics and a greater preparedness to walk away from low-margin contracts.

The recent good news, according to Goldman Sachs is not only a continuation of positive revenue trends for outdoor advertising, but also the observance of market rationality by key competitors.

Revenue trends and competition

Goldman Sachs suggests key players are incentivised to maintain a rational market by a collective aim to grow return on invested capital (ROIC) back towards pre-covid levels.

Regarding revenue trends, the Outdoor Media Association (OMA) is targeting over 9% FY22-26 revenue growth, which is well ahead of forecasts by Goldman Sachs and consensus of 6% and 5%, respectively.

Moreover, the broker notes oOH!media’s competitor JCDecaux is seeing double-digit revenue growth in the first quarter of 2023, and management remains positive on sustaining this growth throughout 2023.

Presumably, this is comforting news for Hold-rated Morgan Stanley, which was cautious on the outlook for advertising spending following oOh!media’s FY22 results.

This broker warned oOh!media, like all OOH operators, has very high operating leverage and is exposed to very high earnings risk from downturns in the advertising cycle.


The key near-term risk for oOh!media, according to Goldman Sachs, are high-margin New Zealand council contracts.

The most significant portion of near-term renewals for these contracts are tied to street furniture contracts with eight New Zealand Councils from the year 2000, which represented around NZ$43m of 2021 revenue.

The broker expects these contracts will mature across 2023/24, with Auckland the largest in the second half of 2024. It’s felt these contracts will be retained at a higher rent, but its noted group earnings (EBIT) forecasts would suffer by around -4.3% should Auckland not be renewed.

Given the over 23-year length of these contracts (albeit renegotiated during this term) and the high earnings margins in New Zealand, Goldmans forecasts the Auckland contract will be renegotiated at a lower earnings contribution.

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