Morningstar | Advertisers Continue Flaunting It Outdoors While oOh!media Brings Adshel Indoors
OOh media continues to enjoy buoyant outdoor advertising market conditions, with the sector posting another 11% year-on-year increase in the recent September quarter. The growth was notably driven by strong spending from gambling operators and travel-related advertisers. For 2018 calendar year-to-date, the outdoor market is up 12%, tracking broadly in line with our 10% full-year revenue growth projection for oOh media. This provides increasing confidence the group will achieve management's underlying EBITDA guidance of AUD 94 to 99 million (we forecast AUD 97 million, up 8% from a year ago).The favourable industry backdrop is especially timely, as the just-purchased Adshel begins its integration into oOh media, a deal approved on Aug. 23 by the competition regulator as we had expected. While management's AUD 15 to 18 million synergy estimate from the AUD 570 million acquisition is entirely cost-driven, extracting such savings and executing on the integration are always much easier when the industry revenue environment is positive. As such, from a pro forma 2018 starting base of AUD 49 million, we remain comfortable with our forecast five-year EBITDA CAGR of 10% for Adshel.
The buoyant outdoor market conditions may explain why shares in no-moat oOh media are trading at a slight premium to our AUD 4.95 fair value estimate (the premium was as high as 11% in late August). However, it is no time for investors to be complacent. APN Outdoor is also on the verge of being folded into JCDecaux after the French group outlaid AUD 1.1 billion for oOh media's biggest rival in the sector. In our view, the enlarged JCDecaux-APN entity could be an even more dangerous competitor. Not only will its financial figures be behind curtains, but its management will be answerable to just one shareholder who is solely focused on getting a decent return on its sizable investment, even if it means investing in the near term to upgrade sales/digital capabilities and lift its market share.
On the other hand, while grappling with this formidable competitor, oOh media must also be accountable to many public shareholders, all with different (arguably shorter) investment horizons and performance measurement periods. And so it should, given these shareholders have just ponied up AUD 330 million to help fund the Adshel acquisition. However, it does require oOh media management to balance the needs of this wide shareholder base for consistent period-to-period earnings and dividend growth, against the need for the group to continue investing in its systems and capability (especially in data and sales). The latter is critically necessary to transform oOh media into a more flexible and data-driven outdoor entity--one that can meet the demands of advertisers struggling to reach audience in an ever-fragmenting media landscape.
Circling back to the September quarter outdoor market, growth in spending from gambling companies may be somewhat surprising in the face of Federal government efforts to curb betting-related advertising. However, the ban on such advertising during sports matches on TV appears to have driven these ironic "gamble responsibly" marketing messages to other channels, with the outdoor medium particularly benefiting.
As for the performance of different outdoor categories during the September-quarter, advertising on roadside billboards (from which oOh media generates 39% of group revenue) grew 12% year on year. In 2018 year-to-date, it is up 15%. Advertising on retail, lifestyle and other (from which oOh media generates 39% of group revenue) grew a more modest 5% in the September quarter. In 2018 year-to-date, it is up 4%. Advertising on roadside other (which includes the street furniture category that Adshel predominantly operates in) increased 2% in the September quarter. However, in 2018 year-to-date, it is up 6%. Finally, advertising in transport (which includes the airport category from which oOh media generates 15% of group revenue) increased 29%. In 2018 year-to-date, it is up 20%.
oOh!media Limited is engaged in providing a range of Out Of Home advertising solution for customers in Australia and New Zealand. Co. operates in four segments namely road, which provides large format roadside billboards; retail, which provides signs in shopping centers; fly, which provides coverage across all domestic airport terminals in Australia, and also provides media to Qantas Lounge, and integrated Wi-Fi site network; and place, which operates in cafes, bars, universities and indoor social sports centers, and also operates Websites. Co. also provides complementary services, such as campaign production, campaign management, creative and digital services, and experiential advertising.
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