IPG, OMC, PUB, WPP: Agency Growth Report -- Pivotal Research

With WPP reporting this morning all of the global holding companies have now reported their 1Q17 results We estimate that the five most similar WPP Omnicom Interpublic Publicis and Havas grew organically by 17 around the world during 1Q17 Growth for the group would have been slightly higher if WPP39s Kantar division were excluded On an asreported basis Omnicom led the global market with a gain of 44 while IPG led the US North America with growth of 29 Publicis was weakest posting a 50 decline for the quarter in North America and fell by 12 globallyThe quarterly result represented a deceleration from the 22 global growth rate posted in 4Q16 and 26 global growth rate posted in 3Q16 Global growth rates during 1H16 were closer to 4 and growth in both 2014 and 2015 were similarly around 4 US North America growth also decelerated falling by 03 during 1Q17 The decline was the first for the industry since the 2009 recession following on growth of around 1 in the second half of 2016 but closer to a range of 45 early in 2016 and during each of 2015 and 2014Before forming conclusions on what the numbers mean it is important to consider the impact of the accounting choices that holding companies make This is because only WPP regularly publishes net revenues for the US and around the world Passthrough activities are typically minor and disclosed by Interpublic and they are not particularly meaningful for Publicis or Havas However they are significant for Omnicom which generates around 30 of its global revenue base from such activities on our estimates These passthroughs account for perhaps 4bn globally on our estimates from entities including Icon Omnet Accuen and Novus which Omnicom has just announced it was selling this month These businesses are US based and probably amount to a higher share of US activity Because the scale of the revenues that are undisclosed growth rates for that company and the industry in general are distorted and margins at Omnicom are reported at significantly lower levels than if they were reported on a basis that was comparable to other holding companies It only takes a 3 change in pass through activities at Omnicom 50mm of that 4bn of estimated passthrough activity at a global level on an annual basis to impact industrywide revenue growth figures by 1 While it is very possible such activities have been more extreme than this on an annual basis it seems unlikely that changes in these activities were sufficiently extreme to change the overall deceleration narrativeThe narrative won39t go away any time soon within the investment community at least Beyond the enhanced scrutiny that marketers have placed on media agency fees in the wake of the ANA39s investigations into fee transparency we have the increasing use of zerobased budgeting ongoing efforts by large marketers to reduce likeforlike fees and cut costs more generally given their own financial weaknesses and competitive threats incremental growth in inhousing of some aspects of agency work incremental competition from IT services firms and a general deceleration in growth of media spending Concerns around these topics are likely to remain at the forefront of investors39 focus upon the industry as 2017 progressesVALUATION We value companies on a DCF basis Key variables driving valuations across the agencies include longterm costs of capital ranging from 115 to 120 WPP on the low end and IPG OMC and PUB on the high end and longterm growth rates ranging from 40 for IPG and OMC to 50 for WPP and PUBRISKS Agency risks relate to squeezing fees from clients competition from adjacent industries reduced competition between marketers and demand for advertising servicesFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE Agencies 42717pdfThe opinions and points of view expressed in this article are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated bloggers

SUBSCRIBE FOR FREE MEDIAVILLAGE CONTENT | BECOME A THOUGHT LEADERSHIP CONTRIBUTOR

IPG, OMC, PUB, WPP: Agency Growth Report -- Pivotal Research

Author

Publish date

Channel

Brian Wieser

"About That with Carl Mayer": Involved Media Connected Audience Fall 2024 Report (Episode 5) - By Carl Mayer

More Videos:

SUBSCRIBE FOR FREE MEDIAVILLAGE CONTENT | BECOME A THOUGHT LEADERSHIP CONTRIBUTOR

IPG, OMC, PUB, WPP: Agency Growth Report -- Pivotal Research

Enjoying This Commentary? There's More to Love

Brian Wieser

"About That with Carl Mayer": Involved Media Connected Audience Fall 2024 Report (Episode 5) - By Carl Mayer

Cookies