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Why oOh!Media Ltd shares are climbing as it delivers double digit profit growth

oOh!Media Ltd (ASX: OML) released its full year 2017 results today. Here are the highlights:

  • Revenue was up 13% to $380 million
  • Gross margin was up 21% to $175 million
  • Underlying EBITDA was up 22% to $90 million
  • Net Profit was up 35% to $33 million
  • Earnings per share were up 26% to 20.2 cents
  • The 2017 full year dividend was up 7% to 15 cents (fully franked). This is a yield of 3.2% on today’s share price
  • Management provided FY 2018 EBITDA guidance of $94 million – $99 million

Management have attributed this strong performance to a long term growth strategy built on:

  • A diverse portfolio (Road and Retail remain the company’s top products contributing 70% of total revenue),
  • Successful acquisitions such as that of Junkee media, and
  • The conversion to digital screens coupled with extended lease profiles (65% of the revenue base expires beyond 2020).

That’s in the past. The success of oOh!Media Ltd going forward now depends on how well their bet on data, content and proprietary trading systems pays off.

Data provides oOh!Media Ltd with valuable insights for their clients and content allows their target audience to be more engaged  by being exposed to advertising that contains more relevant information for them.

All of this in turn, if implemented successfully, could result in a better return on advertising spend for oOh!Media’s clients which would allow oOh!Media to charge more for their services.

A lot of the capital expenditure required to implement this is a fixed cost and so the additional revenues would go straight to the bottom line.

Future announcements relating to the roll out of the data analytics platform will be critical going forward in understanding the likely success of their strategy.

I think oOh!Media Ltd is on the right direction but it’s not a unique strategy as competitors such as QMS Media Ltd (ASX: QMS) are also implementing a similiar digital strategy. It will be interesting to go through the APN Outdoor Group Ltd (ASX: APO) results when they are released tomorrow.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

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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