EARNINGS PREVIEW: Ad Agencies' Growth Trends To Normalize
April 19 2011 - 12:10PM
Dow Jones News
After finishing 2010 with very strong--some even record--
organic revenue growth figures, European media agencies are
expected to return to more normal growth figures at the start of
the year.
First-quarter organic revenue growth, a key industry measure,
should still be robust, with agencies posting growth in the region
of around 7% on average, analysts say, boosted mainly by a strong
U.S., digital and faster-growing regions such as China and Latin
America.
Agency executives are also expected to maintain their positive
outlook for the rest of the year, even caution may creep in due to
the political turmoil in the Middle East and recent earthquake in
Japan that have added to macroeconomic concerns.
Last week, ZenithOptimedia, a unit of Publicis Groupe SA
(PUB.FR), cut its forecast for global advertising spending for this
year as a result. It estimates that these one-off events have
knocked about $2.4 billion off this year's global ad expenditure,
and it lowered its forecast for 2011 to 4.2% growth compared with
the 4.6% growth it previously expected.
Still, analysts say much of this has already been priced in.
Publicis remains a preferred stock for many due its high
exposure to the U.S. and digital and its recent ability to
outperform peers on revenue growth and margins. WPP PLC (WPP.LN),
the world's largest ad group by revenue, is also a top pick for
many analysts, again due to its high exposure to digital and to
faster-growth regions. Its share also looks to be in an attractive
buying range right now, according to Deutsche Bank.
--- Publicis Groupe SA (PUB.FR) --- (April 21)
MARKET EXPECTATIONS: Analysts expect Publicis to post organic
revenue growth of around 6.7% in the first quarter, down from 12.5%
in the fourth quarter 2010 but still strong compared with the 3.1%
posted a year ago, again driven by the U.S. and other regions such
as Latin America. Some analysts note that there is room for
Publicis to surprise on the upside and that the share will likely
react positively if the group manages to post growth in the region
of 10%. Even though Publicis' ZenithOptimedia unit has cut its ad
spending forecast for this year, management is expected to remain
optimistic on revenue growth, which the group has forecast to be
above market growth for the year.
MAIN FOCUS: The market will closely eye comments on outlook and
advertising market trends from Chief Executive Maurice Levy.
Analysts will be keen to hear comments on how the recent earthquake
and following tsunami and nuclear crisis in Japan may impact the
advertising budgets of carmakers, which account for around 15% of
group revenue. They will also pay close attention to any comments
about possible plans for the company to buy back the 11% stake
Japanese ad firm Dentsu Inc. (4324.TO) still holds in the French
group.
--- WPP PLC (WPP.LN) --- (April 28)
MARKET EXPECTATIONS: WPP is expected to post good organic
revenue growth in the first quarter after saying in March that
organic revenue was up over 8% in January, and February seems to
have continued the positive trend. WPP has budgeted organic revenue
growth to come in at around 5% in 2011 and has also said that
prospects for 2012 are encouraging and most analysts expect the CEO
to broadly stick with that view at this stage.
MAIN FOCUS: Analysts will closely watch CEO Sir Martin Sorrell's
take on the recent geopolitical events and Japan disaster and
whether these events have changed his view of the market for the
rest of the year. In March, Sorrell already said the situation in
the Middle East seems more serious in terms of business risk than
the tragedy in Japan, given its unpredictability.
--- Aegis Group PLC (AGS.LN) --- (May 12)
MARKET EXPECTATIONS: Aegis is also expected to post a good
quarter. Analysts feel confident about the turnaround of the
group's U.S. business and the performance of market research
business Synovate. In March, CEO Jerry Buhlmann said Aegis was
starting the year with increased confidence and that 2011 organic
revenue should grow at least as fast as 2010 as clients are
expected to continue to spend more on advertising and marketing
throughout the year.
MAIN FOCUS: Outlook will be the key focus. Analysts will also
look for more details on M&A plans since the group said it
wants to step up acquisitions to strengthen its digital and
emerging market businesses.
--- Havas SA (HAV.FR) --- (TBC)
MARKET EXPECTATIONS: Havas will present its first revenue
performance under the leadership of its new chief executive, David
Jones. However, as the company rarely holds any meetings with
management for quarterly sales reports, not much new is expected in
terms of outlook or the recent strategy refocus. Chairman Vincent
Bollore in March already said that the group's organic revenue
growth was 7.7% at the end of February, which gave analysts some
comfort after the company missed expectations for fourth-quarter
growth.
MAIN FOCUS: Analysts will be watching organic revenue growth in
search of confirmation that the group performed better at the start
of the year than in the last quarter of 2010 and is closing the gap
with rivals. Close attention will also be paid to the group's
performance in the U.S., where Havas also posted growth below that
of peers.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54;
ruth.bender@dowjones.com
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