Stock Alert: invest in the “beating heart of London”
28th May 2020 |
Originally published under Growth Stock Network on 28th May 2020.
The Cumberland Hotel existed on the corner of 23rd Street and Broadway back in 1892. Today it’s more popularly known as the location of the Flatiron building in New York City.
In 1892 on first appearance it wasn’t much different to the other buildings that were dotted around New York City. Except this location in that year would become the start of an entire industry that by 2022 is expected to see almost US$56 billion in revenue flow through it.
On the north side of the Cumberland was the first electric advertising billboard. The advertisement would be named “Ocean Breezes”.
Thomas Edison had only introduced electricity to New York City in 1882 and it was still seen as quite a novelty amongst the population. But its potential and use was starting to be recognised by a far wider-reaching number of people, businesses… and advertisers.
“Ocean Breezes” was designed by Oscar J. Gude, built and installed by the Edison Electrical Company and measured 24.4 metres high and by 18.3 metres wide.
It contained 1,457 incandescent lightbulbs and the actual advertisement was for a new Coney Island resort, Ocean Breezes – hence the name of the billboard.
This was the first electric billboard. And it changed the game of the “out of home” (OOH) advertising world – arguably it was the catalyst for the creation of the global OOH industry.
“Ocean Breezes” started a global move towards electric advertising billboards. And soon, in 1908 just two years after the Piccadilly Circus tube station had been completed and opened, electric advertising billboards landed in perhaps one of the most iconic billboard locations in the world, Piccadilly Lights.
The first advertiser to land on the new electric, illuminated Piccadilly Lights? Perrier.
And for the last 112 years Piccadilly Lights has provided advertising space for the world’s biggest brands from Coca-Cola and L’Oréal, to Calvin Klein, Hyundai, eBay and many more.
It has also been in (near) constant life the entire 112 years. There have been three times that the Piccadilly Lights have “gone dark”. The funerals of Winston Churchill and Princess Diana and the “Lights out London” campaign in 2007.
Aside from that, as chief marketing officer of Ocean Outdoor, Richard Malton describes it, “above all, for many people [the Piccadilly Lights] is the beating heart of London.”
Piccadilly Lights is globally recognised, perhaps one of the most valuable advertising spaces on earth. But it’s not the only advertising space out there.
You might be walking towards Birmingham New Street Station and see advertising on the Birmingham Media Eyes, you might just be driving along a road and see a big digital billboard out the corner of your eye.
Or possibly you might be driving your BMW into Westfield London through the Holland Park roundabout and it comes to mind that you needed to book it in for a service because of the BMW service advertisement that’s staring right back at you.
Outdoor advertising is a huge industry – as people commute, transit and wander around in public on shopping trips, going out with friends or just killing some time, they’re constantly within reach of some kind of outdoor advertising.
And it’s getting increasingly sophisticated. Electric-illuminated billboards are now single-screen digital billboards. Piccadilly Lights biggest overhaul since its creation was when it changed to a single 783.5m2 LED digital screen in October 2017.
And billboards like the BMW one described above are actually visual tracking boards – they can identify the type of car coming towards them and tailor the advertisement based on that information, hence a BMW service ad.
Even now some digital billboards are going interactive with mid-air haptic technology touchscreens that allow for displays and interfaces that are touchless – something that’s now more important than perhaps ever before.
The point is that over the last 128 years since “Ocean Breezes” first debuted, the outdoor advertising space has come a long way and is undergoing a massive shift into modern technologies and applications that continues to drive advertisers, companies spending on advertising and the companies that deliver content to properties and advertising spaces like Piccadilly Lights.
And it’s perhaps no coincidence at all that your latest recommendation’s name is a throwback to that very first electric advertising billboard in New York City back in 1892.
Introducing your latest Growth Stock Network recommendation…
Ocean Outdoor (LSE:OOUT) is an OOH advertising company. More specifically, it’s a pioneer of the DOOH (digital out of home) advertising market and specialises in the latest, most interactive advertising at locations across the UK, the Netherlands and soon into parts of Scandinavia and other European countries.
Ocean Outdoor is listed on the London Stock Exchange with a current price of US$5.40 and a market capitalisation of approximately £226 million.
Note: you will see that the OOUT stock is priced in US dollars – so don’t get confused with GBP when searching for the stock or placing orders.
It has contracts at some of the most iconic advertising locations in the UK – none more so iconic than Piccadilly Lights, smack bang in the middle of Piccadilly Circus.
But some of its other properties include the massive advertising around the BFI Imax at the Waterloo roundabout, Birmingham Media Eyes around Birmingham New Street Station and other locations like Manchester Printworks and several Westfield locations around the country.
You might be driving past an Ocean Outdoor billboard, walking past one, or possibly even interacting with one. They’re everywhere from Aberdeen, Edinburgh and Glasgow, all the way down to Southampton. They’re in Schiphol and Amsterdam up in Groningen and all the way down in Maastricht.
And now with expansion through some recent acquisitions it’s targeting Sweden, Norway, Denmark, Finland and Germany.
Ocean Outdoor is fast becoming the biggest DOOH company in Europe. And yet the company has a market capitalisation of just £226 million. But there’s good reason for that, which I’ll get to shortly.
Its story as a listed company is actually quite recent. In 2018 listed acquisitions company Ocelot had been targeting a company to acquire and re-list with. Ocean Outdoor was its target of choice.
And in March 2018 Ocelot announced a definitive agreement to acquire Ocean Outdoor with an enterprise value at the time of £200 million. It would then rename and re-list on the London Stock Exchange as Ocean Outdoor.
The transaction completed relatively quickly, by the end of March 2018. But re-admission to the stockmarket took some time longer, with the newly named listed company Ocean Outdoor (LSE:OOUT) only relisting on 10 January 2019.
And from there the company as a listed entity has pressed on to develop, grow and expand as one of the UK and Europe’s biggest OOH advertisers.
Of note was its 2019 year where it was able to deliver important wins for the company including a significant deal with Birmingham City Council for, “130 roadside digital 6-sheet screens.”
There was also a partnership with Jaguar Land Rover and the expanding of an existing partnership with the All England Lawn Tennis Club to provide highlights and up-to-date scores for Wimbledon last year, as well as live coverage of the Finals at select Westfield locations.
The company also acquired three Dutch advertising companies to establish a foothold in the Dutch market. Then it acquired Visual Art, a Swedish based OOH company, and as we rolled into 2020 Ocean Outdoor had announced another acquisition of AdCityMedia to expand the company’s reach into Sweden, Denmark, Finland and Norway.
In short, this is a company that has been consolidating the industry and expanding quickly into parts of Europe and Scandinavia.
For the full year 2019, this culminated in Ocean Outdoor taking a big step forward from the year prior and delivering a potential 2020 that would outperform 2019. A growth company with an attractive valuation even in late February when the stock was trading as high as US$8.25.
And then…
Coronavirus, lockdown, economic calamity.
When the population can’t go outside, can’t go to the shops, when locations like Piccadilly Circus, Birmingham Media Eyes and Manchester Printworks have no footfall, when the streets are empty with no commuters – then advertising companies can’t get eyes on their advertisements.
And Ocean Outdoor’s stock was punished as the world went into lockdown. On 4 May just a few weeks ago, Ocean Outdoor’s stock was trading at just US$4. More than half its peak from late February.
But lockdown was never going to last forever, and advertising spend, while grinding to a halt, will pick up again. And when it comes to a company that has some of the most iconic and important OOH advertising space in the country, Ocean Outdoor is primed to be one of our latest bounce-back belters.
Even if there’s a prolonged recession, I still believe that Ocean Outdoor is perfectly primed to continue to see an inflow of advertising revenues and people return back into society. If anything, it may even see an uptick in revenues from customers.
You see according to research from McGraw-Hill as published in an article by Ocreative,
In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies covering 16 different SIC industries from 1980 through 1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising.
In conclusion it also notes,
A series of six studies conducted by the research firm of Meldrum & Fewsmith showed conclusively that advertising aggressively during recessions not only increases sales but increases profits. This fact has held true for all post-World War II recessions studied by American Business Press starting in 1949.
Ocean Outdoor is having a conference call on Monday 1 June 2020 to go through its full-year results for 2019 and its Q1 results for 2020.
We already have an idea of the 2019 full-year results. We know from its full-year trading update on 18 February that,
- Group revenue was up 13.5% to £141.3 million on a proforma basis (2018: £124.5 million)
- Adjusted EBITDA was up 10.5% to £33.6 million on a proforma basis (2018: £30.4 million)
And that its acquisitions strategy has positioned it for strong growth. But we also know that the coronavirus crisis has had a significant impact on the company. And the Q1 numbers we expect to be abysmal. And we would expect the Q2 figures to be equally as bad.
However, I think the second half of this year will see the company return to some more appetising figures and that as we step into 2021, Ocean Outdoor could again be right back up to where it was in the pre-coronavirus world.
Of note is the fact that in a matter of weeks, the public will be able to return back into public, social situations albeit with some social distancing restrictions still in place. But that means footfall, it means eyes back on advertising, it means a need to spend on advertising and it means upside for Ocean Outdoor.
In its 24 March Covid-19 update, Ocean Outdoor noted that,
The Group has no material debt, a strong balance sheet with net cash of approximately £20m, and adequate liquidity even under these uncertain circumstances. Nonetheless, the Group is in discussions with lenders to further bolster its liquidity position.
That has put Ocean Outdoor in a position to weather this storm and with cuts to discretionary spending and reducing the working week, it’s in a great position. It even notes, and I wholeheartedly agree,
Given the nature of its business and the speed at which it can react and deliver campaigns, when clients resume normal levels of advertising, the business is structured to bounce back quickly.
That’s why I think that Ocean Outdoor is worthy of joining our buy list as one of 2020’s most promising bounce-back belters.
The stock has been hit hard, has bounced back already, but is nowhere near its February highs. I think it will bounce back to those levels and then kick on from there. Short term, even bouncing back to $8.25 would see short fire upside potential of 52%.
But of course, our view is longer term than that, and I see Ocean Outdoor being the most prominent, dominant OOH advertising company in Europe. The upside from there, is significantly higher than what we saw from the company in February.
Risks
Of course, while I see tremendous potential in the stock and the bounce-back potential of the company, there are some significant risks involved before you buy here too.
The most notable is the ongoing uncertainty of lockdown conditions and the potential of a second spike in coronavirus.
Contact tracing is coming into force and the public restrictions are being eased. But this comes with the risk that a second wave and a second spike in infections and deaths comes from the CoV-SARS-2 virus.
If that happens and we’re to head back into a secondary lockdown period, it’s going to hit companies like Ocean Outdoor hard. Again, it’s all about footfall and eyes on advertising for it to be effective. When the population is on lockdown, that’s an unnecessary expenditure for companies and the money flow dries up instantly.
Furthermore, if that also leads to a long, extensive recession, then there’s also the likelihood that companies will be more frugal in their advertising expenditures. Regardless of the research that indicates more marketing spend in recessionary periods can lead to more market share and more profits – companies do tighten the belt in recessions.
Furthermore, consumer spending tends to fall off as well. And while advertising spend is important, there has to be tangible return on investment of that for companies, if advertising spend doesn’t equate to sales and profits – ie, no ROI then companies tend to wind back those expenditures.
It’s somewhat of a self-fulfilling prophecy in that sense. It’s why it’s easy to see why market share is up for grabs in recessionary periods. But it’s a tough slog, particularly for OOH advertising companies like Ocean Outdoor.
Also, while I expect the company will bounce back from this, the two points above indicate the risks that revenues and earnings don’t flow as freely as they did before this. That means Ocean Outdoor might not see the kind of growth it had seen before this crisis.
Its numbers this year definitely won’t be anywhere near last year’s. And there’s a risk that 2021’s numbers won’t be as good as 2019’s either. Again, this could drag on the stock price and it may take a little longer than we expect to see its stock price bounce back to previous highs and beyond.
Buying instructions
With a long-term view of the company and with the stock trading at a value I think is far too good to pass up, I think this DOOH market leader is primed as a bounce-back belter for 2020 and beyond.
The company is working on exciting, innovative developments in the DOOH advertising space, it has prime locations as part of its portfolio all over the UK and with expansion plans to Scandinavia and Europe, I think it’s one of the most exciting, yet still unknown companies on the London Stock Exchange.
You should note that trading volumes for Ocean Outdoor are pretty thin. That means that on recommendation of the stock it may jump in price. Average volumes are just 25,535. We would classify this as illiquid and this could make it challenging to enter the stock at an appropriate price as well as exit the stock should that point come.
Hence it’s important to stick to buy-up-to prices and to ensure that if the price pops over our buy-up-to that you maintain patience as there may be another suitable entry point into the stock, which we’ve seen happen before with some of our other recommendations.
BUY Ocean Outdoor (LSE:OOUT) current price US$5.40, buy-up-to US$6.20 if the stock trades over the buy-up-to price, do not buy and wait for the price to trade below the buy-up-to.
Action to take: buy Ocean Outdoor Limited
Ticker: OOUT LN
Price as of 28.05.20: $5.40
Market cap: £226.44 million
52-week high/low: $775.00/$4.00
Buy up to: $6.20
Regards,
Sam Volkering
Editor, Growth Stock Network
