Why advertising giant oOh!media is not past its peak

When you drive up the New South Wales coast from Sydney to Ballina, just about all the billboards placed alongside the M1 are branded oOh!media (ASX: OML).

It is impressive for any company to have a hold on most of the real estate in a market segment.

However, when its share price has fallen the way it has - by over a third from its peak this year - this company might look less of a compelling investment idea. Here's why we think oOh!media is a well-positioned company that deserves a look.

oOh! is an out-of-home advertising operator. It leases space, like road-side land or a bus shelter, places billboards on it, then sells the space to advertisers who use it to run their campaigns.

Softening ad market is in the price

A big driver of the company's performance is the advertising market, which is largely influenced by consumer sentiment.

With companies in the media landscape, including oOh!, reporting a softening in advertising, this appears to have weighed on oOh!'s share price.

Shares are now trading at a price-to-earnings (P/E) multiple of only 10-times this year's earnings. This is lower than historical averages.

A unique advertising medium

The out-of-home advertising medium is unique because it can't be disintermediated. So long as people are travelling, out-of-home advertising will be relevant.

This contrasts with TV, which has struggled to retain viewership in the face of ever-expanding online and digital platforms.

Because of its unique format, out-of-home advertising has grown its share of the advertising market and will likely continue to do so. And as billboards are becoming increasingly digital, the nature of advertising on the medium is changing.

Advertising campaigns can be bought and sold more flexibly, and this makes the medium more valuable. This should support, if not allow oOh! to grow its returns on capital in future.

Good industry structure

Getting back to all those road signs on the M1. oOh! is the number one operator of out-of-home advertising in Australia and New Zealand.

JCDecaux, number two, and oOh! are in competition for many of the large contracts on offer. This kind of industry structure, where there is competition amongst only a few key players, supports the company's ability to maintain its margins and returns on capital.

Solid balance sheet

oOh! shored up its balance sheet during COVID-19. Since then, it's kept tight controls on debt and has allocated capital well.

This suggests that the company will have staying power through an advertising cycle. It has also allowed investors an income through a steadily growing dividend, too.

In our view, for now, oOh! should make up an investor's portfolio because of its discounted valuation. At 10-times P/E, investors are getting a steadily growing and above-average business and at a price that is below the market.

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