Australia’s rush to embrace social distancing, and so slow the spread of the coronavirus, has created short term risk for the outdoor advertising industry.
Analysts have marked down oOh!media’s revenue prospects as the outdoor media leader, already dealing with a weak advertising market, sees its audience head indoors and away from billboards.
Industry insiders say the pullback from some outdoor advertisers during the coronavirus crisis has been swift.
Much of the call to action billboard advertising, such as attending an event or going to a sale, is fast becoming redundant as consumers stay at home with streaming media services running hot.
The company, like many ASX-listed entities, has withdrawn its previous full year earnings guidance of $140 million to $155 million and is looking at pulling back on capital spending and cutting costs.
oOh!media this week: "Deteriorating macroeconomic conditions and resultant market uncertainty caused by COVID-19 has made forecasting full year revenue in the current environment difficult. This is particularly relevant for oOh! given the Company has nine months remaining in its financial year to December 2020.
"The company is taking decisive action to proactively manage the business through this period and ensure it remains well positioned for when conditions stabilise, and continues to make every effort to achieve the prior earnings guidance."
Brian Han, senior equity analyst at Morningstar, is impressed with oOh!media’s fighting spirit as the outdoor advertising specialist tells the market it will make “every effort” to hit previous prior earnings guidance.
But Morningstar has cut its fair value estimate for oOh!media by 14% to $3.20 a share, reflecting the estimated impact of COVID-19 on revenue. Dividend expectations for 2020 have been cut to zero.
“Demand for outdoor advertising is bound to be depressed when an expanding chunk of the economy is bunkering down at home and practising aggressive social distancing,” says Han.
"And those clients who are still standing and care to advertise outdoors, one can be sure they will be driving a hard bargain with oOh!media amidst the current malaise.”
Investors assume the worst. The shares are trading at $1.01, a long way from the 12-month high of $4.74.
“The trepidation is understandable as we venture into uncharted waters on coronavirus' ultimate impact,” says Han.
“However, assuming it is contained within this year and the balance sheet rides out the storm until then, there is clear value in oOh!media shares on long term fundamentals.”
Macquarie Wealth management says oOh!media does face short term downside risk.
However, the analysts continue to believe in the structural growth of outdoor media and the benefits to oOh!media.
Out-of-home (OOH) is around 6% of the advertising pie in Australia and OOH audience growth has outpaced population growth since 2011, says Macquarie.
“We see continued growth in share of the total advertising pie for out-of-home going forward,” write the Macquarie analysts.
But there are risks in the short term with four of the ten key outdoor categories -- retail, automotive, entertainment/leisure, travel -- expected to be hit by COVID-19.
“While still yet to hit ad markets there is no doubt COVID-19 is having an impact on the broader Australian economy,” the Macquarie analysts write in a note to clients.
“Media operators, especially those with perceived elevated gearing have been hit the hardest from a share price perspective.
“oOh! is potentially exposed from falling advertiser demand due to a weaker economy; and from declining audiences as a result of social distancing (... reduced traffic on roads, through public transport, and in retail centres/airports).”
Much of the company’s overheads are fixed but some areas such as retail have revenue linked rental payments for advertising space.
Macquarie expects a rebound in out of home growth in calendar 2021.
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