Small Caps | Aug 25 2021
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.