Description

Thesis

oOh!media (ASX: “OML”) is one of two leading outdoor advertising companies in Australia and New Zealand (ANZ). It is a small cap deep value investment with optionality. The stock is down around 70% from its highs due to (1) CEO and founder Brendon Cook announcing his intention to step down; and more significantly (2) the expected impact of Covid-19 on the outdoor advertising industry in ANZ. OML looks inexpensive versus its historic valuation averages, trading at less than 6x 2019 EV/EBITDA and over 15% normalized 2019 LFCF yield. This leaves material scope for the shares to re-rate over the medium term as outdoor advertising volume and pricing recover. OML has been pro-active by re-capitalizing its balance sheet earlier this year via a successful equity issue in March, and its banks agreed to reset covenants. This has placed the company in a stronger position to weather the Covid-19 storm, with current net debt to 2019 EBITDA around 1.5x.

Business Description

oOh!media is one of Australia’s largest out of home media companies and is a market leader in each of its environments. The company’s connected offline and online ecosystem comprises of over 30,000 locations (including 9,000+ digital signs) across Australia and New Zealand, inclusive of:

• National coverage with a premium digital roadside network, static roadside network (Street Furniture) and Australia’s largest digital rail network (Commute by oOh!)
• Large format roadside billboards across all major capital cities (Road)
• Small and large format sites located in shopping centers (Retail)
• Sites in airport terminals and airline lounges (Fly)
• Sites in high dwell environments from CBD office buildings, cafés, bars and venues, to universities (Locate by oOh!)

Source: oOh!media FY 2019 Results Presentation, 24 February 2020  

Company History and Industry Dynamics

OML was founded in 1989 by Brendon Cook. The company listed on the ASX in 2002 as Network Limited (ASX: NWK) and was taken private by private equity sponsors in 2012. OML was relisted in late 2014.

Over the past few years, the industry backdrop has improved for OML due to consolidation and the two major players considerably increasing market share. The top five main players 3 years ago (OML, APN Outdoor, HT&E, JCDecaux and QMS) have now become three (OML, JCDecaux and QMS). In 2018 OML bought Adshel from HT&E, and JCDecaux bought listed peer APN Outdoor. In researching OML, it is apparent that ANZ outdoor advertising companies have seen strong historic interest from both private equity and strategic acquirers. OML was previously owned by CHAMP Private Equity (now CPE Capital), APN Outdoor was previously owned by Quadrant Private Equity and smaller peer QMS was bought in February this year by Quadrant. These acquisitions have typically been at valuations of 9x EBITDA or higher. This speaks to the quality of the businesses and long-term structural growth of the outdoor advertising sector which has taken share from traditional media over time.

The largest shareholder of OML is HMI Capital, founded by former private equity investor Marco Hellman. HMI has experience investing in the sector, having previously owned competitor APN Outdoor, which attempted to buy OML in 2016-2017, but the deal was blocked by the Australian regulator due to the high market share of both players. APN Outdoor was ultimately bought by competitor JCDecaux. Marco Hellman of HMI was recently appointed a Director of OML after HMI increased their holdings via the recent equity issue. This appears to be a positive set of developments that will improve the corporate governance standards of the company and ensure good Board alignment with significant shareholders.

Interestingly, following the capital raise this year, it also emerged that Australian media strategic HT&E had opportunistically acquired around 4.2% of OML.  HT&E used to own one of the OML’s major assets (Adshel). HT&E has a strong balance sheet and it has been reported in the press that they may consider further M&A opportunities in the ANZ media sector.

Valuation

OML is currently trading at a discount to peers at less than 6x 2021E consensus EBITDA (vs ~11x avg).

Placing a multiple of 9x on normalized EBITDA (using 2021 Bloomberg consensus data, which is close to 2019 levels – see “Mid” case below) implies close to 70% upside for the stock.

Note: Comps sheet is in USD. Projections generated via Bloomberg consensus data with analyst lease adjustments where required for consistency. OML debt and share count is adjusted for recent capital raise.

Risks

OML’s key risks include: Covid-19 impact; cyclicality; long term leases; and financial leverage. 

Catalyst

Recovery in outdoor advertising in ANZ