The oOh!Media Ltd (ASX:OML) share price has been rocked by the COVID-19 pandemic, plunging more than 69% in March. Prior to the pandemic, shares in oOh!Media were already weaker after the company reported subdued full-year earnings.
So has the oOh!Media share price been oversold, and is it a long-term buying opportunity?
Why has the Ooh!Media share price plunged?
In late February, oOh!Media reported a 5% drop in underlying earnings for the full-year of $139 million. The company cited weaker advertising spending and higher costs for the subdued performance. In addition, annual net profit also dropped 54% for the full-year to $13.4 million as a result of accounting rule changes. The outdoor advertising company only managed to increase revenue by 1% to $640.6 million for the full year.
oOh!Media advised caution earlier in the year over how the spread of coronavirus could impact advertising. Despite reporting revenue for the year to date to be in line with last year, oOh!Media was the first company in the Australian media sector to dump its earnings guidance for 2020. The company pulled its guidance, citing the market uncertainty caused by the coronavirus pandemic.
The oOh!Media share price came under further pressure over fears about the company's debt levels. As at 31 December, oOh!Media had $355 million net debt, equating to 2.6 times annual earnings before interest, tax, depreciation and amortisation.
How has oOh!Media responded?
In late March, oOh!Media put its securities in voluntary suspension as the company looked to undertake a $167 million capital raise in order to pay down its debt. The institutional capital raise included a $39 million share placement and $128 million entitlement offer at 53 cents per share.
According to the outdoor advertiser, the equity raising and relevant cost reductions will be used to strengthen the company's balance sheet in preparation for a deep recession and provide the company with enough liquidity.
oOh!Media also plans to pay down its debt of $355 million and commence a cost-cutting drive of $45 million to $65 million. However, the company has vowed to avoid making any of its 850 employees redundant.
Should you buy?
The Australian advertising market continues to be a tough trading environment as many companies are facing tighter marketing budgets. Outdoor advertising was already down before the coronavirus crisis and is expected to fall further as companies tighten their budgets and the federal government orders social distancing measures.
The completed capital raising has more than doubled the shares on issue for oOh!Media, and will help the company stay afloat. According to analysts, the capital raising and cost reduction methods will allow oOh!Media to survive a recession and fall in revenues.
I think a prudent strategy would be to wait for oOh!Media to issue its earnings guidance to get an idea of where the company stands before making an investment decision.
