BUY HOLD SELL – Ooh Media (ASX: OML)
Ooh Media (ASX: OML) is an Out-Of-Home advertising and media company. It offers advertisers the platform to create engagement with audiences through its portfolio of physical assets, linked to online, mobile and social media. Its road and commute segments are its main earners, contributing to more than 60% of revenue. The business trumpets its product range, scale and data collection resources, able to reach 77% of all metro and regional Australians. The business owns digital publisher Junkee Media, printing business Cactus, and experiential provider oOh!Edge. Back in March oOh!media announced a $167m capital raising to re-pay debt and position the business to get through the recession. The new equity reduced net debt to $194m from $355m. At the time, there was also speculation HT&E was looking at OML as a takeover target. In early April, HT&E Chariman Hamish McLennan told the AFR that his company was "prepared to be incredibly patient", treating its acquisition of $15m of OML shares as an "equity investment". OML in 2018, purchased Adshel off HT&E for $570m, now under the banner of the company's Commute division. In January, founder Brendon Cook indicated his intention to step down as CEO although has stayed on through much of the pandemic. Cathy O'Connor was appointed as Managing Director and CEO on Monday. She was previously the CEO of Nova Entertainment Group. The recovery story has driven the share price since results. OML reported a first-half underlying loss of $17m, down from an $18m profit in FY19. Revenue fell to $205m from $305m in the previous year. Cost savings of more than $80m the main highlight. EBITDA of $10.8m was ahead of Credit Suisse estimates of $3 million but well down on $56m in FY19. What the market has focused on since, is the gradual improvement in audience volumes as restrictions have eased. Second-half Australian audience uplifts are expected to deliver meaningful revenue growth across Q3 and Q4 vs Q2. Large national advertisers in Australia and New Zealand have also increased their briefing activity and are acting in a more measured approach vs the initial April lockdown. With increased confidence from lower cases and the hope of a vaccine, audiences continue to return to out of home environments nationally. Total Out-of-Home audience volumes in mid-august were tracking at 75% of their 2019 level, up from a low of ~50% in mid-April. Monday’s research note showed audience levels surged to 82% of 2019 levels nationally. In markets outside of Victoria, audiences are almost back to normal, now at 97% of 2019 levels. Main observations:
- ROE of -2.2% is poor, but it is forecast to improve in the following periods after shaking off the COVID slump. Capital raising in March not helping either.
- Revenue growth expected to be down 31% this financial year, although there is some evidence to support upside risk. A return to activity out of the home saw audience levels surge in the past week, to 82% of 2019 levels nationally.
- Similar to revenue, EPS growth is likely to be hit hard this year but likely to bounce back near pre-COVID levels in future periods with green shoots starting to emerge.
- Half of the brokers surveyed by Thomson Reuters have a BUY recommendation. The stock is trading at a 19.2% discount to the average broker target price.
- Suspended its dividend policy in March. In FY19, OML had gross yield of 11.7% which is outstanding.