Last week Prime Minister Scott Morrison called the Australian federal election for the 18th May 2019, only a few weeks away. It has felt as if the campaign has been in full swing for a lot longer than this given the amount of conjecture in financial markets over the impact this election will have on equity prices.
We are not going to speculate here on the outcome from a party nor from a policy perspective. There is a lot of water yet to flow under that bridge. However, irrespective of the outcome, we suspect that the folk at oOH!media (one of our portfolio holdings) will be cheering the end of the election campaign come the 18th May.
oOH!media provides out of home advertising on more than 30,000 high profile sites across Australia, including in airports, on billboards alongside major arterial motorways in cities, retail precincts, office and university locations. Originally all static billboards (think posters physically stuck onto the billboard), these have progressively been replaced with digital billboards, providing an additional advertising revenue opportunity as adverts can be rotated more frequently through digital sites.
This digitisation dynamic has helped the outdoor advertising industry to grow revenues throughout the decade and increase its share of the total advertising pie (from 4% in 2010 to approx. 6% today). This is in contrast to many traditional media channels which have lost advertising dollars to the internet and social media companies. Given spending trends internationally, we think this growth could continue for a number of years.
The industry structure in Australia has also improved lately with two mergers in 2018 reducing the number of major out of home competitors from five to three players. oOH!media played a part in this, acquiring Adshel, a business which added rail and street furniture sites to their portfolio of assets.
With a strong management team, a favourable competitive structure and structural advertising tailwinds we like oOH!media’s longer-term outlook.
Management have however been cautious on their nearer term outlook, primarily because of the upcoming general election.
The election impact
Intuitively, one would think elections result in increased advertising by political parties so this should benefit the advertising industry. With outdoor advertising it is a bit different. Billboards on many roadsides, CBD locations and around airports are located on government owned land. Given the restrictions around using government property for political party advertising, the outdoor media industry can often miss out on election related advertising spend.
Also, businesses sometimes reduce advertising spend or defer marketing campaigns until the election is out of the way to avoid having their marketing messages diluted by the political noise.
These factors both play into oOH!media’s caution about the near term. The good news is that the election is taking place in a seasonally low period for advertising spend in the year. Coupled with the relatively short length (~5 weeks) of the campaign, this should reduce the degree of the impact.
Like the electorate, which seems to be tired of the endless political posturing on both sides of the aisle, we are looking forward to putting the 18th May behind us and focussing on the brighter, longer term future which underpins oOH!media’s growth.