oOh!media’s ‘bitter pill’ backed by Credit Suisse

OOh!media’s $167m equity raising offers the outdoor advertising company the ability to navigate a choppy environment in the coming months, say analysts from Credit Suisse.

Last week, oOh!media secured $39m through a placement and $128m through an entitlement offer by selling shares at 53c each, a 37 per cent discount to its last closing price.

The raise was not only deeply discounted, but highly dilutive.

Credit Suisse analysts said in a research note that the raise by oOh!media removes near term liquidity risk and provides welcome headroom relative to its debt covenants in order to navigate what is likely to be a choppy environment in the coming months.

This is despite the raise being “clearly a bitter pill for shareholders to swallow”, the analysts said.

The company, which relies on advertising revenue for signs and billboards at a time much of the country has been forced indoors, will see severe earnings per share declines of between 80 per cent and 90 per cent, but questions around oOh!media’s future had now been put aside, the analysts said.

Credit Suisse has forecast net debt for the company of $161m by the end of the financial year, equating to about 2.2 times its earnings before interest, tax, depreciation and amortisation, below its revised debt covenant of four times.

The raise reduces oOh!media’s net debt to 1.4 times its 2019 financial year EBITDA from 2.6 times.

OOh!media has cancelled its dividends and cut back on spending, which would enable the company to generate meaningful free cash flow, even on a depressed earnings base, the analysts said.

They believe revenue will fall between 50 and 55 per cent.

However, they say shareholders are gaining access to oOh!media at seven times its trough EBITDA and say the company’s structural characteristics and favourable market structure has not changed.

OOh!media’s shares were trading at about 60c on Monday morning.