EARNINGS PREVIEW: Ad Agencies Set To Confirm Recovery
10 February 2011 - 12:18AM
Dow Jones News
Advertising agencies are expected to report yet another good
quarter of organic revenue growth, finishing the year on a high and
confirming the recovery in the industry, and giving an upbeat
outlook for 2011.
Following a stronger-than-expected recovery in ad spend during
the first nine months of the year, driven mainly by a buoyant U.S.
market, fourth quarter organic revenue growth at most agencies is,
however, likely to slow slightly from the previous quarter due to
tougher comparisons.
Advertising executives are expected to give an upbeat outlook
for 2011. Most advertisers, forecasters and analysts now agree that
2011 will be another solid year for the industry, although not
quite as strong as 2010. On average, industry experts expect global
ad spending to grow 4% to 5%, but some are more upbeat. Goldman
Sachs recently raised its forecast for agencies' organic revenue
growth by one percentage point to 6.5% to take into account
positive indications on U.S. spending and a more positive
macroeconomic outlook.
With strong revenue growth widely expected, the key focus will
shift to margins. All of the agencies are investing to reintroduce
bonuses and boost staff levels, notably to recruit new talent in
digital and expand in emerging markets and some analysts are
concerned that this may inflate costs more than initially expected
and thus weigh on margins.
Close attention will also be paid to agencies' objectives for
cash usage and potential dividend increases.
WPP PLC (WPP.LN) and Publicis Groupe SA (PUB.FR) remain the
favored stocks in the sector for many analysts due to their large
exposure to emerging markets and digital activities but also due to
expectations of increased payouts to shareholders.
Meanwhile, analysts have been encouraged by improving momentum
at Aegis Group PLC (AGS.LN), buoyed by the group's increasing
exposure to the Asia-Pacific region.
--- Publicis Groupe SA (PUB.FR)--- (Feb. 10)
MARKET EXPECTATIONS: Kicking off the earnings season for the
European agencies, Publicis is expected to confirm the recent ad
industry recovery, with potential for a positive surprise on
organic revenue growth. Publicis has targeted organic revenue
growth of around 6% in 2010, but analysts say the group is likely
to beat this number. Chief Executive Maurice Levy is expected to
remain upbeat about the market for next year and will likely
reiterate the group's target to outperform market growth. Still,
the potential for good news on margins is more limited.
MAIN FOCUS: The key focus for the fourth quarter will be on the
group's margin and margin prospects for 2011 and beyond. Publicis
has said it aims to post a full-year operating margin higher than
the 15% posted last year, but analysts worry that the margin
improvement may slightly disappoint amid higher staff costs and the
integration of recently acquired digital agency Razorfish. Comments
on plans for what the company aims to do with its cash and any
potential increase in the dividend will be a focus. A commitment to
higher shareholder returns could prove a positive catalyst for the
shares.
--- WPP PLC (WPP.LN) --- (March 4)
MARKET EXPECTATIONS: WPP, the world's largest advertising group
by revenue and market capitalization, is expected to post robust
fourth quarter revenue growth, driven in particular by its high
exposure to emerging markets and the strong U.S. ad recovery. Some
analysts say WPP could also surprise the market positively on top
line growth in 2011. WPP has so far said it expects organic revenue
growth of between 3% and 4% in 2011. It also said it is likely to
exceed its 2010 margin target of one margin point improvement and
that its 2011 margin should improve by at least half a margin
point.
MAIN FOCUS: The market will be keen to hear CEO Martin Sorrell's
outlook for 2011 and comments on staff costs. Analysts are also
interested in hearing more about the group's plans for shareholder
remuneration after Sorrell in October hinted that WPP is leaning
towards higher dividends over share buybacks. He said the group
will continue to make small to medium-sized acquisitions but not
significantly more than it has done over the past two years.
---Aegis Group PLC (AGS.LN) --- (March 17)
MARKET EXPECTATIONS: The U.K.-based advertising and marketing
firm is also expected to post strong fourth quarter organic
revenue, but the company already cautioned that the rate of growth
is expected to slow from the third quarter. Management is expected
to remain positive about prospects for 2011 after CEO Jerry
Buhlmann in November said there were increasingly positive signals
from its clients regarding their short-term advertising expenditure
plans.
MAIN FOCUS: In addition to outlook and comments on margins,
analysts are keen to get an update on the group's recent
acquisition of Australia's Mitchell Communication Group Ltd and
some believe the group could give a better-than-expected synergy
target, potentially lifting the share price on the day. The
acquisition of Mitchell, the group's first large deal for some
time, has boosted Aegis's exposure to the Asia-Pacific region,
which should help the group post organic revenue growth at the top
end of its peer group in 2011, according to Nomura.
--Havas SA (HAV.FR) --- (TBC)
MARKET EXPECTATIONS: Havas is expected to post good
fourth-quarter organic revenue growth, benefiting notably from
recent new business wins, after it suffered large account losses in
France and the U.S. in 2009. Analysts don't expect much detail on
outlook for 2011 as the group lately has been very shy in
communicating guidance. Chairman and main shareholder Vincent
Bollore has said he expects continued revenue growth in the second
half.
MAIN FOCUS: The key focus will be on the margin as analysts are
keen to find out if the group still has potential to increase its
margin further, following a period of cost optimization which has
seen Havas catch up with peers in terms of margin. The market is
also keen to hear more about plans for M&A given that the group
now has financial leeway and has said it would like to expand its
presence in emerging markets and digital. Eyes will also be on the
dividend as many analysts believe higher shareholder returns look
increasingly likely.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54;
ruth.bender@dowjones.com
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