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Why profit growth wasn’t enough to lift this consumer-facing ASX stock

The oOh!Media Ltd (ASX: OML) share price took another tumble this morning after the outdoor advertising group posted its half year result and issued a weak outlook.

The OML share price fell 3.9% to $2.93 in morning trade as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index shed 1.5% on renewed worries of a global recession from the Trump trade war with China.

But just about all advertising related stocks are on the backfoot given the sector’s sensitivity to economic slowdowns. The Nine Entertainment Co Holdings Ltd (ASX: NEC) share price took a 4.1% hit to $1.86, the Seven West Media Ltd (ASX: SWM) share price fell 3.9% to 37 cents and the WPP Aunz Ltd (ASX: WPP) share price shed 3.3% to 58 cents at the time of writing.

Softening the blow

In that context, the slide in the oOh!Media share price doesn’t seem to bad and that’s largely because management had already issued a profit warning two weeks ago that triggered a close to 30% plunge in the stock.

The group said that pro forma interim revenue actually managed to increase by 5% over the same time last year to $304.9 million as its Commute division recorded a big 13% rise in first half sales and underlying net profit before amortisation of acquired assets inched up 3% to $18.2 million.

Any growth in a challenging market is good news although investors weren’t in a forgiving mood on this risk-off day.

Instead, the market remained concern about the difficult conditions in the current quarter although management said that its seeing a recovering in ad bookings in September.

That’s still won’t be enough to change its latest profit warning with management forecasting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for this calendar year (its financial year ends on December 31) of between $125 million and $135 million compared to its previous guidance of $152 million to $162 million.

Outlook improving but still down

The all-important December quarter, which is usually the most important time for the group, is also looking uncertain. While pacing is up 6% from the same time last year, commentary from media houses and industry reports highlights sluggish major advertiser confidence across the board.

This could potentially pose a risk to the group’s final dividend if trading conditions take a bigger than expected turn for the worse.

While management has kept its interim dividend steady at 3.5 cents per share, last year’s final dividend was cut to 7.5 cents from 10.5 cents.

The good news is that the group is boasting it has a sound balance sheet, is cash flow positive if you overlooked one-off items and believes the out-of-home advertising market continues to grow market share against other media formats.

At least oOh!Media isn’t as impacted by the digital disruption as compared to other media companies.

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Motley Fool contributor BrenLau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia has recommended Nine Entertainment Co. Holdings Limited and 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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