Equity Research Report

OML

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Generated on: 24 February 2025, Time: 10:50 GMT

Result Summary

oOh!media's recent performance reflects a period of strategic transition, with 1H24 revenue declining 2.8% to $288.3 million, primarily impacted by the exit of the Vicinity contract and recontracting of a significant street furniture agreement. Despite revenue pressure, the company demonstrated strong operational discipline with gross profit margins expanding 1.3 percentage points to 67.4%. The digital transformation continued at pace, with digital revenue increasing to 73% of total revenue (up from 67% in 1H23), supported by the rollout of over 300 new digital panels.

The Out-of-Home (OOH) advertising sector has demonstrated remarkable resilience within a challenging broader media landscape. While traditional advertising channels face significant headwinds, with television declining 10% and radio down 4%, the OOH sector achieved 8% growth and captured a record 15% share of advertising agency media spend. This structural shift reflects changing consumer behaviors and advertiser preferences, positioning OOH as an increasingly critical component of media strategies, particularly as digital transformation enables more dynamic, targeted advertising solutions.

The macroeconomic environment presents a mixed picture for oOh!media. While high interest rates have impacted financing costs (+18.1% YoY), the company maintains partial protection through $150 million in interest rate derivatives until October 2025. Consumer mobility continues to improve, supporting revenue growth in City & Youth (+16%) and Retail segments. Government infrastructure investment, particularly in public transport and urban development, provides additional growth vectors through new contract opportunities, including the Victorian Department of Transport and Planning contract and Melbourne Metro Tunnel greenfield sites.

The company faces three primary risks: market share loss (revenue decline of 3% vs market growth of 8%), contract renewal risk (19% of revenue exposed to CY24 renewals), and digital investment execution risk (capex up 42.7% YoY). Management has responded with specific initiatives including sales leadership renewal, enhanced capabilities, and a cost reduction program expected to deliver $15 million in savings from CY25. The company's strong balance sheet (gearing 0.8x) provides financial flexibility to navigate these challenges while investing for growth.

Near-term momentum has accelerated into CY25, with 14% revenue growth year-to-date in February and Q1 media revenue pacing up 14% on the prior corresponding period. Management expects "significantly stronger" growth in Q4 CY24, supported by seasonal patterns and strategic initiatives. The medium-term outlook is underpinned by a strong contract pipeline, including projected incremental revenue opportunities of $38 million from 2025 onwards. CEO Cathy O'Connor emphasizes that "the long-term growth outlook for OOH remains highly attractive, as the best performing category in media, having now surpassed 15% of total advertising spend."

Outlook & Market Conditions

oOh!media's recent performance reflects a company in transition, with 1H24 revenue declining 2.8% to $288.3 million primarily due to contract changes, while maintaining underlying operational discipline with improved gross margins. Management has provided clear guidance for accelerating momentum, with Q3 media revenue pacing up 2% year-on-year and expectations of significantly stronger growth in Q4 CY24. The company has implemented specific initiatives to address revenue performance gaps, including sales leadership renewal and enhanced capabilities, while a cost reduction program is expected to deliver approximately $15 million in savings from CY25. The digital transformation continues at pace, with digital revenue now representing 73% of total revenue, supported by the rollout of over 300 new digital panels during the period.

Market expectations are being recalibrated based on the company's improved trajectory and strategic initiatives. The Out of Home sector is anticipated to achieve mid to high single-digit growth in CY24, maintaining its position as the best-performing category in media with over 15% share of advertising spend. oOh!media's February 2025 year-to-date performance showing 14% revenue growth, combined with Q1 CY25 media revenue pacing up 14%, suggests potential upside to current market estimates. The company's strong contract pipeline, including projected incremental revenue opportunities of $38 million from 2025 onwards through new contract wins, provides additional support for growth expectations. The market is likely to focus on the company's ability to execute its revenue recovery strategy while maintaining cost discipline, with particular attention to the success of its digital transformation initiatives and retail media expansion.

The operating environment presents both challenges and opportunities. While the broader media landscape remains challenging, with traditional channels experiencing significant declines (television -10%, radio -4%), the Out of Home sector continues to demonstrate structural growth. The gradual return of CBD office audiences and recovery in travel activity are supporting growth in high-margin segments such as City & Youth (+16%) and Fly (+6%). The retail environment shows signs of stabilization, with seasonal patterns normalizing and increased digitization creating new opportunities for audience engagement. Government infrastructure investment, particularly in public transport and urban development, provides additional growth vectors through new contract opportunities. However, persistent inflationary pressures and high interest rates continue to impact operating costs and financing expenses, necessitating ongoing focus on operational efficiency and strategic cost management. The company's strong balance sheet (gearing 0.8x) and hedged interest rate position provide financial flexibility to navigate these challenges while investing for growth.

Group Summary

| 1H24 / June 2024 |

Metric Value (now) Value (pcp) YoY Change
Revenue 288.3 296.6 -2.8%
Digital Revenue % 73.0% 67.0% +6.0ppts
Gross Profit Margin 67.4% 66.1% +1.3ppts
Adjusted EBITDA 48.6 49.6 -2.0%
EBITDA Margin 42.0% 43.3% -1.3ppts
NPAT 5.8 6.4 -9.6%
Adjusted NPAT 18.2 20.5 -11.2%
EPS (cents) 1.1 1.1 0.0%
DPS (cents) 1.75 1.75 0.0%
Operating Cash Flow 65.1 94.0 -30.7%
Capex 23.4 16.4 +42.7%
Net Debt 124.9 83.8 +49.0%
Gearing Ratio 0.97x 0.60x +0.37x
Right-of-Use Assets 683.3 599.6 +14.0%
Digital Asset Count 300+ - -

Group Summary Report

oOh!media's 1H24 results reflect a period of strategic transition and investment against a challenging backdrop. Revenue declined 2.8% to $288.3 million, primarily impacted by the exit of the Vicinity contract and recontracting of a significant street furniture agreement. However, the company demonstrated strong operational discipline, with gross profit margins expanding 1.3 percentage points to 67.4% through strategic contract management and cost control initiatives. The digital transformation continued at pace, with digital revenue increasing to 73% of total revenue (up from 67% in 1H23) supported by the rollout of over 300 new digital panels.

The company maintained its market leadership position while investing for future growth, with capital expenditure increasing 42.7% to $23.4 million focused on digital asset deployment. This investment strategy, combined with working capital requirements, led to an increase in net debt to $124.9 million and gearing ratio to 0.97x. Despite these pressures, the company maintained its dividend at 1.75 cents per share, demonstrating confidence in its financial position and future prospects. Operating cash flow declined 30.7% to $65.1 million, reflecting the increased investment in inventory and settlement of tax liabilities.

Looking ahead, management has implemented specific initiatives to address revenue performance gaps relative to the broader OOH market, including accelerated digitization of the retail portfolio and strengthening sales capabilities. The company has secured a strong pipeline of future revenue growth, with projected incremental revenue opportunities of $38 million from 2025 onwards through new contract wins, including the Victorian Department of Transport and Planning contract. This positions oOh!media well to capitalize on the continued structural growth in the OOH sector, which has now captured a record 15% share of advertising agency media spend.

Segment Breakdown

| 1H24 / June 2024 |
| Road |

Metrics Value YoY Change Strategic Impact
Revenue 100.8M -3% Core segment impacted by Vicinity exit
% of Total Revenue 35% -0.1ppts Remains largest revenue contributor
Digital Asset Additions 50+ N/A Enhanced network coverage

| Street Furniture & Rail |

Metrics Value YoY Change Strategic Impact
Revenue 91.0M -3% Contract restructuring impact
% of Total Revenue 31.6% +0.1ppts Growing contribution
Digital Panels Added 224 N/A Network expansion

| Retail |

Metrics Value YoY Change Strategic Impact
Revenue 58.3M -10% Vicinity contract exit impact
% of Total Revenue 20.2% -1.6ppts Declining share
New Digital Screens 439 N/A Portfolio digitization

| Fly |

Metrics Value YoY Change Strategic Impact
Revenue 22.2M +6% Recovery momentum
% of Total Revenue 7.7% +0.6ppts Growing contribution
Digital Innovation N/A N/A New immersive screens

| City & Youth |

Metrics Value YoY Change Strategic Impact
Revenue 9.7M +16% CBD recovery
% of Total Revenue 3.4% +0.6ppts Increasing contribution
New Office Assets 21 N/A Portfolio expansion

Segment Commentary

Road: The division experienced a 3% revenue decline to $100.8M, primarily due to the Vicinity contract exit, though underlying performance remained resilient with flat media revenue excluding this impact. Strategic expansion continued with over 50 new digital assets added, including the landmark West Gate Freeway site in Melbourne. The segment maintains its position as the largest revenue contributor at 35% of group revenue, with renewed growth momentum observed entering Q3.

Street Furniture & Rail: Revenue declined 3% to $91.0M, impacted by the restructuring of a major contract that reduced non-media revenue in exchange for lower fixed rent. Core media revenue grew 3% when adjusted for contract changes. The segment demonstrated strong strategic progress with 224 new digital panels commissioned and significant contract wins including Sydney Metro, positioning for future growth with remaining rollouts planned for 2025.

Retail: Revenue decreased 10% to $58.3M, primarily due to the Vicinity contract exit. However, underlying performance was strong with 8% growth excluding this impact. The segment is undergoing significant transformation with 439 new digital screens installed across 113 centres, focusing on high-footfall locations. This digital expansion strategy aims to offset the Vicinity impact and maintain the group's leading retail media position.

Fly: The segment delivered 6% revenue growth to $22.2M, driven by strong second quarter performance and continued recovery in travel activity. Strategic initiatives included the successful Melbourne Airport digital expansion, featuring new immersive screens in the arrivals hall. The segment's contribution to group revenue increased to 7.7%, reflecting its growing strategic importance.

City & Youth: Revenue grew 16% to $9.7M, benefiting from the gradual return of CBD office audiences and the segment's variable rent model. The addition of 21 new office tower assets strengthened the portfolio, while maintaining attractive margins due to the flexible cost structure. The segment's share of group revenue increased to 3.4%, demonstrating its value as a high-margin growth driver.

Industry Outlook Report

The Out-of-Home (OOH) advertising sector continues to demonstrate remarkable resilience and growth potential within a challenging broader media landscape. While traditional advertising channels face significant headwinds, with television declining 10% and radio down 4%, the OOH sector has achieved 8% growth and captured a record 15% share of advertising agency media spend. This structural shift reflects changing consumer behaviors and advertiser preferences, positioning OOH as an increasingly critical component of media strategies.

The industry is undergoing rapid digital transformation, with digital assets now representing the majority of revenue streams for leading operators. This evolution is driven by advertisers' demand for more dynamic, targeted, and measurable advertising solutions. The sector's growth is further supported by infrastructure investments, particularly in high-traffic urban locations and transport hubs. The emergence of retail media as a new growth vector presents significant opportunities for OOH operators to expand their addressable market and create additional revenue streams.

Five key effects are reshaping the industry landscape: 1) Digital transformation is driving improved yield management and operational flexibility, enabling operators to optimize pricing and inventory utilization; 2) Contract consolidation is leading to portfolio optimization opportunities, with operators focusing on higher-margin locations and formats; 3) Infrastructure investment requirements are creating barriers to entry while enabling future growth potential; 4) Cost pressures are necessitating operational efficiency initiatives and strategic reviews; 5) The emergence of retail media is creating new revenue opportunities while requiring additional investment in technology and capabilities.

Looking ahead, the OOH sector is well-positioned for continued growth, supported by structural tailwinds and technological advancement. The industry's ability to deliver measurable audience reach in increasingly digital formats positions it favorably against traditional media channels. However, success will require continued investment in digital capabilities, strategic contract management, and operational efficiency initiatives. The sector's evolution towards more sophisticated, data-driven advertising solutions suggests sustained growth potential, particularly for operators who can effectively balance investment requirements with margin management.

Top 3 risk exposures

  1. Market Share Loss
    The company's underperformance relative to market growth (-3% vs +8%) represents the most immediate threat to its business model and competitive position. This risk is particularly concerning given oOh!media's position as market leader and the structural growth occurring in the OOH sector. The revenue decline occurred despite strong industry tailwinds, suggesting internal execution issues rather than market conditions. Management has responded with specific initiatives including sales leadership renewal and enhanced capabilities, but these changes will take time to yield results. The near-term impact includes revenue pressure and potential margin erosion from competitive pricing, while medium-term consequences could include structural market share loss and reduced negotiating power with property partners. This risk is particularly critical given the company's high fixed cost base and significant lease obligations, where market share loss can have an amplified effect on profitability.

  2. Contract Renewal Risk
    With 19% of revenue attached to contracts expiring in CY24, contract renewal risk represents a significant threat to the company's revenue base and profitability. While management has identified a pipeline of new opportunities worth $38M in incremental revenue, these are not yet secured and face competitive tender processes. The risk is heightened by the company's recent market share challenges, which could impact its competitive position in renewal negotiations. Near-term impacts include potential revenue gaps and increased costs to retain key locations, while medium-term effects could include structural changes to the company's network footprint and margin profile. The company's ability to maintain its extensive network of premium locations is fundamental to its value proposition to advertisers, making this risk particularly significant for long-term competitive positioning.

  3. Digital Investment Execution
    The company's aggressive digital transformation strategy, while necessary, carries significant execution risk given the scale of investment required and the pace of technological change. The rollout of over 300 new digital panels represents substantial capital commitment, with capex increasing 42.7% year-on-year. Near-term impacts include pressure on cash flow and margins from depreciation charges, while medium-term risks include potential technological obsolescence and ongoing capital requirements for maintenance and upgrades. The success of this strategy is crucial for maintaining competitive advantage and enabling yield optimization, but the high fixed cost nature of these investments means any execution missteps could have lasting financial implications. Management's ability to deliver returns on these investments while maintaining financial flexibility will be critical for long-term value creation.

Profit & Loss Metrics

| 1H24 / June 2024 |

Metric Value (now) Value (pcp) YoY Change
Revenue 288.3 296.6 -2.8%
Gross Profit 194.3 196.1 -0.9%
Gross Profit Margin 67.4% 66.1% +1.3ppts
Operating Expenditure 70.2 67.8 +3.5%
Underlying EBITDA 124.1 128.3 -3.3%
EBITDA Margin 42.0% 43.3% -1.3ppts
Depreciation & Amortization 87.6 100.4 -12.7%
EBIT 33.5 28.0 +19.6%
Net Finance Costs 24.1 20.4 +18.1%
Net Profit After Tax 5.8 6.4 -9.6%
Adjusted Underlying NPAT 18.2 20.5 -11.2%
EPS (cents) 1.1 1.1 0.0%

Balance Sheet Metrics

| 1H24 / June 2024 |

Metric Value (now) Value (pcp) YoY Change
Cash & Equivalents 31.8 31.6 +0.6%
Trade Receivables 110.6 117.2 -5.6%
Total Current Assets 158.6 165.0 -3.9%
Property, Plant & Equipment 154.6 149.6 +3.3%
Right-of-Use Assets 683.3 599.6 +14.0%
Intangible Assets 715.0 723.6 -1.2%
Total Assets 1,743.0 1,659.5 +5.0%
Current Liabilities 208.2 221.3 -5.9%
Non-Current Borrowings 156.7 115.4 +35.8%
Total Liabilities 1,018.0 918.1 +10.9%
Net Assets 725.0 741.3 -2.2%
Net Debt 124.9 83.8 +49.0%

Cash Flow Metrics

| 1H24 / June 2024 |

Metric Value (now) Value (pcp) YoY Change
Operating Cash Flow 65.1 94.0 -30.7%
Capex 23.4 16.4 +42.7%
Free Cash Flow -18.3 8.6 -312.8%
Interest Paid 25.1 21.6 +16.2%
Tax Paid 30.0 23.6 +27.1%
Dividends Paid 18.9 17.4 +8.6%
Net Cash Movement 0.1 -24.6 +100.4%