oOh!Media Ltd (ASX: OML) is one of Australia's leading media agencies specialising in out of home advertising, such as billboards and digital advertising displays. It harnesses technology and data analytics to optimise audience engagement and reach, spanning a network of 30,000 locations including major highways, train stations and retail centres.
Despite growing revenues for the calendar year 2018 (CY18) by 27% to $482.6 million, investors slashed down its shares by more than 14% when the company announced its half-year report in February. Although there was strong performance its recently acquired Commute business, rampant expenditures (up 32% on CY17) and acquisition costs funded by share issues resulted in net profit after tax (NPAT) declining by 4%.
While organic revenue growth reached 10%, the cracks were starting to show in oOh!Media's core retail business. The segment represents 27.5% of the group's total revenues, and declined 2% from CY17. It's hard to make a case that this is likely to improve; in January the shopping centre giant Vicinity Centres (ASX: VCX) revalued their portfolio downwards by $37 million due to declining foot traffic.
oOh!Media's CEO Brendon Cook described 2018 as a "transformational year" as the company diversifies its earnings from retail assets. Revenues from its Qantas in-flight partnership exceeded expectations, and saw the segment lift revenue meaningfully by 23.2% to $67.8 million. The newly acquired Commute segment is also expected to make up roughly 35% of pro-forma revenues, reducing the company's reliance on retail income to 20%. Other key highlights for the company include an increase in underlying NPATA (NPAT before acquired amortisation costs) by 18% on CY17, and a 5% increase in total dividends.
The outlook for oOh!Media
The company has forecasted an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) range of between $152–$162million for the full CY19, representing growth of between 35%–44% on CY18 figures. However, it appears unlikely that much of this growth will reach the bottom line, with another $55–$70 million (35%–70% increase on CY18) in capital expenditure expected.
Foolish takeaway
Even with the remarkable contribution from its Commute acquisition, tough retail trading conditions could prove disastrous for the media advertising industry. With $410 million in debt liabilities and growing costs, I'm not convinced there is enough growth to justify a buy at its current valuation.
