Is oOh!media (ASX:OML) Poised for a Turnaround as Analysts Upgrade and Earnings Retention Rises?

The Australian Out-of-Home (OOH) advertising sector has long been a battleground for companies navigating shifting media budgets and macroeconomic headwinds. oOh!media (ASX:OML), one of the largest players in this space, has faced its share of volatility in 2025. However, a confluence of analyst upgrades, strategic shifts in payout ratios, and improving operational metrics suggests the company may be on the cusp of a meaningful turnaround. This article evaluates whether these developments signal a near-term upside and long-term sustainability for the stock.

Analyst Sentiment: A Mixed but Encouraging Signal

The past six months have seen a tug-of-war in analyst sentiment. In April 2025, MACQUARIE RESEARCH upgraded oOh!media from Neutral to Outperform, citing renewed confidence in the company's ability to capitalize on structural shifts in advertising budgets. This was followed by a JEFFERIES downgrade in July, which moved the rating from Buy to Hold, reflecting caution about near-term execution risks. Most recently, MACQUARIE reaffirmed its Outperform stance in August but later downgraded to Neutral, highlighting evolving market dynamics.

These mixed signals underscore the complexity of oOh!media's position. While analysts remain divided, the net effect of upgrades suggests a growing belief that the company's fundamentals are undervalued. The key question is whether these upgrades are justified by tangible operational improvements.

Strategic Shift in Payout Ratios: Fueling Growth or Shareholder Returns?

Historically, oOh!media has prioritized shareholder returns, with a three-year median payout ratio of 83%. This aggressive dividend policy left only 17% of earnings for reinvestment, a strategy that worked well during periods of strong revenue growth but limited flexibility during downturns.

However, the company is now pivoting. Analysts project a reduction in the payout ratio to 52% over the next three years, a move that will free up capital for reinvestment. This shift aligns with broader industry trends: as OOH advertising gains traction over traditional media (TV, radio, print), companies must reinvest in high-impact assets and digital capabilities to maintain market share.

The implications for Return on Equity (ROE) are significant. oOh!media's current ROE of 4.9% (slightly above the industry average of 3.9%) is modest but improving. With a lower payout ratio and higher retained earnings, analysts forecast ROE to rise to 9.9% by 2028, a level that would position the company as a more compelling long-term investment.

Capital Allocation: Cost Discipline and Strategic Reinvestment

oOh!media's 2025 half-year report revealed a $11.3 million net loss, a stark contrast to the $5.8 million profit in the prior year. However, this loss occurred against a backdrop of 17% revenue growth and a 26.3% rise in EBITDA. The company has responded with a $15 million cost-reduction initiative, targeting operating and non-rent expenses to offset inflationary pressures.

The capital allocation strategy is equally telling. Full-year capital expenditure is projected to reach $53–63 million, with a focus on rolling out new advertising assets in high-growth corridors like Sydney Metro and Woollahra. These investments are not speculative—they are tied to high-value contracts that are now entering full production.

Moreover, oOh!media is expanding its reo (retail environment optimization) unit, forming partnerships with national brands like Petbarn and Australia Post. These partnerships are expected to drive both revenue and margin expansion, as the company taps into the growing retail media sector.

Valuation and Catalysts: Is the Stock Undervalued?

At a next-twelve-month P/E of 12x, oOh!media trades at a discount to its historical average. This valuation appears to underprice the company's improving operational performance and the structural tailwinds in OOH advertising. Key catalysts for the remainder of 2025 include:
1. Full production of Sydney Metro and Woollahra contracts, which are expected to contribute ~$20 million in incremental revenue.
2. Further interest rate cuts, which could spur broader media spending.
3. Execution on cost discipline, with $15 million in savings already factored into FY2025 guidance.

Risks and Considerations

While the case for a turnaround is compelling, risks remain. The recent net loss highlights operational fragility, and the JEFFERIES downgrade underscores concerns about execution. Additionally, the OOH sector is highly competitive, with rivals like JCDecaux and Billabong Media vying for market share.

Investors must also weigh the timing of the payout ratio reduction. A 52% payout ratio by 2028 is a long-term target; in the near term, the company's ability to balance reinvestment with shareholder returns will be critical.

Conclusion: A Buy for the Patient Investor

oOh!media's strategic shift in payout ratios, coupled with analyst upgrades and improving operational metrics, paints a cautiously optimistic picture. The company is navigating a challenging media landscape with a disciplined approach to cost management and capital allocation. While the near-term risks are real, the long-term potential—driven by structural growth in OOH advertising and a more sustainable payout policy—makes the stock an intriguing opportunity for patient investors.

For those willing to ride out the volatility, oOh!media offers a compelling mix of undervaluation, operational momentum, and industry tailwinds. As the company executes on its turnaround plan, the market may yet reward those who recognize its potential.