Small Caps | Aug 25 2021
This story features OOH!MEDIA LIMITED. For more info SHARE ANALYSIS: OML
The road to recovery for Ooh!media has been blocked by a return to lockdowns yet advertising appears well-placed to rebound by the December quarter
-Slowdown in August/September as lockdowns resume
-Advertising campaigns being pushed out to the December quarter
-Airports/fly segments will be the last to recover
By Eva Brocklehurst
First half results revealed road formats and the New Zealand business performed well for oOh!media ((OML)), while road and street furniture advertising is expected to lead the recovery once the current lockdowns in NSW and Victoria are lifted.
Commentary from the company was constructive, Goldman Sachs asserts, and underpins confidence in the rapid pace in which the business can rebound in 2022. Revenue in the September quarter to date is around 38% higher than the prior corresponding quarter, or around 74% of 2019 levels, despite NSW being in lockdown for the quarter so far.
Around 75% of oOh!media business recovered in the first half while audience remained limited for airports, railway stations and offices. This grouping, representing the remaining 25%, is expected to benefit as people return to work and travel.
Still, a slowdown in August/September is on the cards, as Credit Suisse notes bookings in July were firm, similar to the first six months of the year, and the trend has now dropped away.
This suggests less activity as lockdowns continue to have an impact, and illustrates the high sensitivity of advertising expenditure to re-opening. Ord Minnett agrees and believes the stay-at-home orders will affect oOh!media for an indeterminate period of time, and almost certainly throughout the second half of 2021.
The broker finds it difficult to become more constructive on valuation grounds, given this uncertainty, and expects second half revenue will drop -8.4% as a result of the lockdowns, and 2022 revenue be at 97.9% of pre-pandemic levels.
Taking into account a delay to recovery in out-of-home advertising, ultimate exposure to a cyclical advertising market as well as uncertainty around Sydney Trains, Credit Suisse opts to retain a Neutral rating.
The Sydney trains contract has been extended until the end of 2021 and the company has reaffirmed that no single contract represents more than 6% of group revenue so Macquarie, instead, focuses further ahead.
The broker highlights the fact advertising campaigns have typically been pushed into the fourth quarter, and so attract a higher yield as advertisers will pay higher rates rather than missing out on the opportunity to re-book.
Macquarie anticipates lockdowns will persist until December and factors into its estimates the “fly/locate” segment remaining structurally affected in 2022. Higher staffing costs are factored in as well as lower rental abatements.
Ord Minnett also points to the prospect of the airports/fly segment being the last to recover and assumes 94% of 2019 revenue will not return until 2023. Data shows the government segment is leading the outdoor recovery.
Still, oOh!media has the largest inventory of both big format digital and traditional assets in road advertising for both metro and regional Australia and Canaccord Genuity believes the company is well-placed for re-opening, as the government's plan is calling for reduced use of lockdowns, which have been particularly disruptive for out-of-home advertising.
The broker calculates that, currently, Australians are moving about more than they did in the June quarter of 2020 and this should provide support for the revenue base. Furthermore, restrictions should be lifted by the December quarter as vaccination rates are projected to increase.
The broker also cites recent industry forecasts which indicate out-of-home revenue should return to pre-pandemic levels in late 2023 and its forecasts reflect that trajectory, with FY22 revenue now expected at $619m, representing 20% growth, and FY23 at $658m.
Both Canaccord Genuity and Goldman Sachs, not among the seven stockbrokers monitored daily on the FNArena database, reiterate Buy ratings, with the latter retaining a target of $2.04 and the former $1.70. Goldman Sachs believes investors should look through the near-term risk of lockdowns and consider the potential upside in 2022.
FNArena's database has one Buy (Macquarie) and two Hold ratings. The consensus target is $1.59, level with the last share price.
See also, Treasure Chest: Opportunity in oOh!media on August 3, 2021.
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