Why oOh!Media Ltd (ASX:OML) is primed to leverage off a sector explosion

Credit: Franciso Diez

We’ve all seen it in movies – giant outdoor advertising screens pulsing with messages adorning streetscapes and skyscrapers a la Times Square New York City.

Outdoor advertising is a rapidly growing niche, with digital screens made from concrete allowing displays to be seamlessly integrated onto the sides of buildings.

With technology in the space ramping up on the daily, the opportunities are endless, and if oOh!Media Ltd (ASX: OML) plays its cards right, it could be the company behind transforming the cities of Australia into the next Hong Kong or New York.

With its share price hovering at 52-week high levels, now is likely not the time to buy into oOh!Media, but it is certainly the time to keep them on watch if you aren’t already.

oOh!Media is an out of home media company with a $1.24 million market cap which has often been known for going neck and neck with its rival APN Outdoor Group Ltd (ASX: APO).

But with APN releasing its final set of results as a publicly-listed company before its takeover by French advertising company JCDecaux, and oOh!Media’s recent acquisition of street furniture specialist Adshel from media, entertainment, and technology company HT&E Ltd (ASX: HT1), things are looking pretty solid for oOh!Media.

Credit Suisse recently resumed coverage of oOh!Media, placing an outperform rating on it and raising its price target to $5.80.

oOh!Media shares are at $5.22 at the time of writing, down from its 52-week high of $5.39 in late August.

But clearly Credit Suisse believes in the strength of the company going forward, particularly as APN disappears from the market and the benefits of its Adshel uptake begin to filter down.

oOh!Media’s half-year results, released in August, were not bad, but certainly did disappoint some hoping for better margins.

The company reported a revenue rise of 11% to $192 million, with statutory net profit up 1.6% to $9.3 million but a fair chunk of profit was eaten up by investment in digital technology which resulted in a higher depreciation charge.

Balance sheet-wise, oOh!Media is generating strong cash flow, with operating cash flow more than doubling for the half-year to June 30, 2018, to $29.1 million as capital expenditure fell 19% on the previous corresponding period.

oOh!Media has reaffirmed its growth in the out of home sector for FY18 with underlying EBITDA of between $94 million and $99million expected.

If oOh!Media can ensure its Adshel acquisition is worthwhile, using the new ground to enter new segments of the street furniture and rail advertising realm, growth going forward could be significant.

Foolish Takeaway

oOh!Media management says they are “investing in the future” of the company and if this is true, and they recognise opportunities as they present themselves, oOh!Media could be well-placed to achieved solid earnings growth. I would wait until the company’s full-year results are out to get a better idea of its direction, but oOh!Media is certainly on my watchlist in this emerging niche.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended oOh!Media Ltd. 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 Scott Phillips.

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