OML: Out-of-Home Advertising - The $936 Million Question
OML: Out-of-Home Advertising - The $936 Million Question
In a Nutshell
Executive Summary
In a Nutshell
oOh!media operates Australia and New Zealand's largest out-of-home advertising network — billboards, street furniture, rail stations, airports, and retail centres — across more than 30,000 assets. At A$1.00 versus a fair value of A$1.67, the stock is undervalued by 67%. The key driver is a methodological dispute: the market treats $936 million in lease liabilities as financial debt, which makes oOh! look fairly priced; our analysis treats rent as an operating cost — which it already is in reported earnings — and reveals a business trading at less than half its peer multiple.
Investor Profiles
| Profile | Rating | Rationale |
|---|---|---|
| Income | ★★★☆☆ | The fully franked dividend yields 6.25% at the current price, with dividends growing toward 6.7 cents per share by CY27. A 50% payout ratio is sustainable given improving free cash flow, though cover is tight in CY26 while growth capex remains elevated. Good for income seekers who can tolerate a one-year cash flow ramp. |
| Value | ★★★★☆ | At 4.7 times adjusted EBITDA on a lease-exclusive basis, oOh! trades at roughly half the 10–12 times typical of global peers. The margin of safety is meaningful: even the bear case implies 35% upside from current levels. Re-rating requires either rate normalisation or the market's adoption of the adjusted valuation framework — neither is guaranteed quickly, but the discount is real. |
| Growth | ★★☆☆☆ | Revenue is forecast to grow at 6–8% annually, supported by contracted assets including the Transurban and Melbourne Metro Tunnel pipelines. However, EBITDA margins are deliberately declining from 20.1% toward 18% as competitive responses normalise returns. Earnings per share growth of 4–10% over the next two years is real but modest. Not ideal for investors seeking rapid earnings acceleration. |
| Quality | ★★★☆☆ | A return on invested capital of 16.4% — well above the cost of capital — reflects genuine competitive advantage in contracted network assets. The moat is narrow but stable: 60% of revenue is locked to contracts expiring CY29 or later, and incumbency renewal rates of 70–80% are typical in the sector. The new CEO introduces execution uncertainty that limits a higher quality rating for now. |
| Thematic | ★★☆☆☆ | Out-of-home advertising has taken a record 16.4% share of Australian agency media budgets, driven by digital panel conversion and brand-safety premiums that online platforms cannot match. The structural rotation from broadcast to OOH is real. However, retail format weakness and the absence of a disclosed remediation plan dampen the thematic clarity. Best suited to investors with a specific view on Australian media spend recovery. |
Best fit: Value investors. oOh! is a fundamentally sound business — 16.4% ROIC, contracted revenue, improving free cash flow — sitting at a steep discount that stems primarily from an accounting methodology debate rather than deteriorating fundamentals. The 6.25% fully franked yield provides income while waiting for the market's valuation framework to catch up. Patience is the prerequisite.
Executive Summary
oOh!media sells advertising space across more than 30,000 billboards, transit panels, airport displays, and retail screens throughout Australia and New Zealand. Advertisers pay for access to audiences in high-traffic locations; oOh! pays concession rents to the asset owners — councils, transport authorities, and shopping centre landlords — and earns the margin in between.
CY25 results were solid. Revenue grew 8.8% to $691 million, adjusted EBITDA reached $139 million at a 20.1% margin, and adjusted net profit came in at $63 million. Out-of-home advertising captured a record 16.4% of Australian agency media budgets. Free cash flow nearly doubled to $28 million as the business absorbed elevated growth capex tied to new contracted infrastructure assets.
The investment case rests on two foundations. First, the business is operationally sound: contracted revenue visibility through CY29, above-cost-of-capital returns, and a structural tailwind as advertisers rotate budgets away from broadcast media. Second, the valuation is anomalous. The market appears to include $936 million in lease liabilities within enterprise value — but those rents are already deducted from the earnings figure the market is pricing. Correcting for this double-count reveals a business trading at less than half its peer multiple.
At A$1.00 versus a fair value of A$1.67, the stock is 67% undervalued.
Results & Outlook
What happened?
oOh! delivered a clean CY25 result. Billboards and transit panels — two-thirds of revenue — grew 10.5% as digital conversion lifted yields and new contracted assets came online. Airport and office formats surged 23%, recovering fully from post-pandemic lows. Retail was the one blemish, declining 5.7% amid intensifying supply competition in Australian shopping centres. Management delivered $15 million in structural cost savings as guided, and the balance sheet remains conservatively geared at 0.8 times bank debt to EBITDA.
| Metric | CY24A | CY25A | CY26E | CY27E |
|---|---|---|---|---|
| Revenue ($M) | 635.6 | 691.4 | 750.0 | 805.0 |
| Adj EBITDA ($M) | 128.9 | 139.1 | 142.5 | 153.0 |
| EBITDA Margin (%) | 20.3 | 20.1 | 19.0 | 19.0 |
| EPS (cents) | — | 11.7 | 12.2 | 13.4 |
| DPS — fully franked (cents) | — | 6.25 | 6.1 | 6.7 |
| Free Cash Flow ($M) | — | 28.0 | 54.4 | 62.7 |
What's next?
CY26 brings three moving parts. Gross margins will compress slightly — from 43.2% to around 42.5% — as Auckland Transport contract revenue rolls off and new contracted assets carry higher initial ramp costs. EBITDA margins step down from 20.1% to 19.0%, reflecting this mix shift rather than any loss of pricing power.
The offset is volume. Australian media revenue was tracking 7% ahead of the prior year in the early weeks of CY26, and the Transurban and Melbourne Metro Tunnel pipelines provide identifiable contracted growth through CY27 and beyond. Airport and office formats should sustain double-digit growth as corporate travel normalises fully.
The bigger change in CY26 is free cash flow. As growth capex stabilises around $60 million and working capital normalises, free cash flow is forecast to nearly double to $54 million. That improvement funds dividends comfortably and reduces the need for external capital.
Valuation & Risks
| Metric | Value |
|---|---|
| Fair Value | A$1.67 |
| Current Price | A$1.00 |
| Upside | +67% |
| Bear Case | A$1.35 (+35%) |
| Bull Case | A$2.13 (+113%) |
| Probability-Weighted Value | A$1.63 |
| Dividend Yield (at A$1.00) | 6.25% fully franked |
What could go wrong?
The single biggest risk is that the market's valuation framework never changes. If investors permanently include $936 million of lease liabilities in oOh!'s enterprise value — even though those rents are already deducted from the earnings being priced — then the stock is fairly valued at around $1.00 and the apparent discount is a mirage. This is not an irrational position: some investors genuinely view concession rents as a financial obligation equivalent to debt. The probability of this framework persisting is material, estimated at around 40%.
The second risk is cyclical. Australian advertising spend is recovering, but the RBA cash rate remains at 3.85% — an elevated level that has historically suppressed advertiser confidence. A renewed inflation shock forcing another rate increase could reverse the early CY26 recovery, compressing revenue growth toward 3–4% and dragging EBITDA below $130 million. In that environment, the bear case value of $1.35 becomes the relevant reference point, not the base.
Retail format weakness is a slow-burn concern. Australian retail OOH revenue fell 7% in CY25 with no specific remediation plan disclosed under the new CEO. If that decline accelerates, it offsets gains elsewhere and creates persistent gross margin pressure beyond what is already modelled.