Partnerships With Petbarn, Officeworks, And Australia Post Will Unlock New Revenue Streams

Key Takeaways

• Structural growth in Out of Home advertising and new partnerships are expected to drive oOh!media's revenue growth and unlock new streams.
  
• Cost reduction and restructuring efforts are projected to improve margins and enhance market share through efficient asset deployment.
  
• Challenges in retaining retail contracts and executing growth strategies may affect revenue stability, earnings, and market share potential.

Catalysts

Operates as an out of home media company primarily in Australia and New Zealand.

• The Out of Home advertising sector is experiencing significant structural growth, with expectations of an 8% increase in ad spend this year, which can drive oOh!media's revenue growth.
  
• New partnerships and contracts in the retail media space, such as those with Petbarn, Officeworks, and Australia Post, are poised to unlock new revenue streams and have the potential to enhance oOh!media’s earnings over time.
  
• Cost reduction initiatives implemented in early 2025 are expected to deliver approximately $15 million in net savings, thus potentially improving net margins and operating leverage.
  
• The rollout of new assets in Sydney Metro and anticipated growth from additional street furniture contracts are expected to drive further revenue upsides.
  
• Operational restructuring aimed at energizing the go-to-market approach and optimizing network potential may lead to increased market share and more efficient deployment of existing assets, supporting both revenue and margin improvements.

oOh!media Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming oOh!media's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 9.5% in 3 years time.
• Analysts expect earnings to reach A$73.2 million (and earnings per share of A$0.13) by about February 2028, up from A$36.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$61.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the AU Media industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.17%, as per the Simply Wall St company report.

oOh!media Future Earnings Per Share Growth

Risks

• The exit of the Vicinity contract and a decrease in retail revenue by 9% may negatively impact future revenue streams, potentially affecting overall earnings.
  
• The underwhelming performance in the first half of 2024 and a 1% decline in yearly growth for the Road format highlight issues in execution that could pose risks to revenue and market share if not addressed.
  
• The impact of lower-than-expected revenues, despite improved gross margins, suggests potential volatility in revenue projections, which could affect earnings stability.
  
• Increased net finance costs by $1.7 million and a projected rise in effective tax rates due to nondeductible expenses could increase financial burdens, potentially impacting net margins.
  
• The reliance on future contract wins and competitive positioning, especially regarding the Auckland Transport contract extension and potential future RFP, introduces risks that may affect revenue stability and market strategy.

Valuation

• The analysts have a consensus price target of A$1.722 for oOh!media based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.0, and the most bearish reporting a price target of just A$1.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$771.0 million, earnings will come to A$73.2 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$1.52, the analyst price target of A$1.72 is 11.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.