Here’s why the oOh!Media Ltd share price jumped today

Credit: APN Outdoors

Advertising business oOh!Media Ltd (ASX: OML) has announced its earnings results for the full-year ended 31 December 2015 today, with both revenue and earnings exceeding its prospectus forecasts.

Notably, oOh!Media’s primary competitor, APN Outdoor Group Ltd (ASX: APO), also released a strong set of earnings results today (keep an eye out for a recap on those results at! APN Outdoor’s shares rose 6.1% this morning while oOh!Media’s shares rose 5.9% to $4.31.

The Company

oOh!Media operates in the fast-growing out-of-home advertising industry. It not only owns a suite of roadside billboards, but also thousands of signs and other advertising boards located in shopping centres, airports, cafes, and health clubs around the country (the image below shows just one of its roadside billboards).

Source: oOh!Media

Source: oOh!Media

The Results

For the 2015 calendar year, oOh!Media reported pro-forma revenue of $279.8 million, which was 7.3% higher than the previous year and 5% above prospectus guidance. Pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) also exceeded its prospectus guidance by a considerable amount, up 37.1% on the prior corresponding period (pcp) at $57.7 million. This was also at the top end of guidance ($57 million to $58 million) provided by management in November.

Here are some of the other highlights:

  • Pro forma adjusted net profit after tax (NPAT) of $28.5 million, up 56.8%
  • Digital revenue up 47.6%, greatly exceeding prospectus forecasts
  • Pro forma EBITDA margin of 20.6%, up from 16.1% in 2014
  • Final dividend of 6.7 cents per share
  • Agreement to extend bank facilities by $50 million to $190 million, providing room for more growth

The growth in digital revenue is particularly pleasing. Notably, it installed more than 900 new digital retail screens across Australia and New Zealand and also increased the number of large digital roadside billboards from 8 to 25 during the period. Digital revenue represented 31.9% of total group revenue in 2015, up from 23.2% in 2014.

Most of the growth for the year came from Road revenue, up 8.4% to $110.9 million, and retail revenue, up 11.2% to $99 million. Fly revenue (from airports) rose 7.1% to $54.5 million while place revenue (cafes, health clubs) gained 11.4% to $98 million.

Source: oOh!Media investor presentation

Source: oOh!Media investor presentation

What happens now?

The group intends on replacing more of its traditional billboards into digital offerings as this not only creates the opportunity for greater margins, but also expands the pool of potential customers. For instance, it would make sense for a car dealer wanting to run a three-day sale to promote the event on a digital sign, but not on a traditional billboard as the advertising campaign would be too slow to implement.

For the 2016 calendar year, oOh!Media expects EBITDA to grow between 17% and 25%, or between $68 million and $72 million, while it also expects capital expenditures to be between $20 million and $25 million. This would include the conversion of 10 to 15 large format roadside billboards to digital, together with between 300 and 500 retail digital screens.

I don’t currently own shares in oOh!Media, but based on its strong performance and future prospects, it’s certainly on my long-term watchlist.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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