Look Inside oOh media for Value as Investors Head Outside on Macro Risks

Business Strategy & Outlook

OOh media is strongly-positioned to benefit from the positive dynamics driving the Australian (and New Zealand) outdoor advertising industry. This has seen outdoors’s share of the total advertising pie lift from 3.5% in 2009 to 5.7% prior to COVID-19. The trend continuing, especially as the Australian outdoor medium’s share still lags Canada (8%), the United Kingdom (6%), and the global average of 6%-plus. Our view is based on three structurally related tailwinds. First, unlike other traditional media, outdoor audience is increasing. This is due to population growth, greater living density, and increasing commuter traffic on major roads, public transport and in retail precincts–fertile areas for marketers struggling to reach mass audiences in a fragmenting world. Second, a key Achilles heel for the outdoor advertising industry was the lack of reliable audience measurement. However, with the 2010 launch of measurement of Outdoor Visibility and Exposure, or MOVE, the medium now has greater legitimacy and offers a more robust way for marketers to assess the return on money allocated to outdoor advertising. Third, in contrast to its debilitating impact on other traditional media, digital technology is a growth facilitator for the outdoor industry. Converting a traditional outdoor advertising site to a digital one is attractive to marketers as it allows creative flexibility, immediacy and premium presentation. Digital conversion also benefits the outdoor advertising operator as it attracts new clients, allows greater inventory utilization and offers yield management flexibility.

However, like all players in the outdoor advertising space, oOh media’s business model hinges on its portfolio of leasehold concessions. The contract duration for the roads segment is generally five to 10 years, typically with an extension option for another five years. The retail and place divisions are more varied, with renewal agreements generally directly negotiated. The risk is not the group failing to renew these concessions, but the terms on which they will be renewed.

Financial Strengths

At the end of December 2021, net debt/EBITDA was 0.8 times, pre AASB 16. This to remain below 1.0 for the foreseeable future and within the renegotiated 3.25 covenant limit. The current dividend payout policy is reasonably conservative at between 40% and 60% of net profits after tax but before amortization acquired intangibles, allowing further investment in digitization and technology. However, due to the uncertain impact of the coronavirus outbreak, there were no dividends in 2020. But dividends were reinstated in early 2022 and to grow solidly over the next three years.

Bulls Say

Outdoor advertising is a growth medium benefiting from structural tailwinds such as increasing audience, more reliable measurement, and conversion of inventory to digital.

Australian outdoors’s 5% share of the total advertising pie still lags Canada (8%), the U.K. (7%), and the global average of 6%-plus.

OOh media may have failed in its attempt to merge with APN Outdoor in 2017, but it completed the acquisition of Adshel in September 2018 and there is an opportunity to extract sizable synergies from the combination.

Company Description

OOh media operates a network of outdoor advertising sites with a commanding share of the Australian market, and has also presence in New Zealand. It boasts a diverse portfolio of locations to service the needs of outdoor advertisers, and is particularly strong in the roadside billboard and retail (such as shopping malls) segments. OOh media offers these services by entering into lease arrangements with owners of outdoor sites–effectively an intermediary allowing site owners to monetize their visible space in high-traffic areas. In late September 2018, the group completed the acquisition of Adshel from HT&E for AUD 570 million, a deal that cements its competitive position in the face of industry consolidation

(Source: Morningstar)

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