BoAML: Global ad forecast up to 2% in 2012
Global ad & marketing spend growth raised to 2.8% in 2012
Bank of America Merrill Lynch (BoAML) has raised its global ad forecast from 1.4% to 2% in 2012 to reflect recent GDP upgrades and stronger than expected trends in Q4. The bank expects marketing services to continue to outperform advertising, so has raised its 2012 global ad and marketing services forecast from 2.2% to 2.8%. Although, its forecasts remain conservative compared to other industry estimates such as Zenith (+4.7%) and Group M (+6.4%).
Upgrade agency organic growth to c3.5% in 2012
BoAML has raised its agency organic growth forecast from 2.6% to 3.4% in 2012 (vs WPP’s guidance of c4%).
Agency EBIT upgraded 3 to 4% in 2012 and 5 to 10% in 2013
BoAML has raised its underlying agency earnings by 3 to 4% in 2012 and 5 to 10% in 2013, bringing it more in line with consensus. The upgrade to Aegis earnings includes some scale benefits from account wins in the US, although BoAML assumes zero margin contribution from GM for two years.
Remains preferred sub-sector in H1; top picks WPP & Havas
BoAML says it continues to like the agency sub-sector as a whole: believing that 2012 growth will be H1-weighted, supported by quadrennial events, with scope for consensus upgrades to support share prices in the first half. The group’s key picks remain WPP (price objective raised from 775p to 925p) given its emerging market exposure, valuation and scope for improved momentum in market research, and Havas (price objective raised from €3.7 to €4.3) given margin upside, valuation and possible cash returns.
Aegis’ superior growth priced in; Publicis margin concerns
BoAML believes Aegis’ (price objective raised from 147p to 175p) superior growth (new business and digital exposure) and potential bid interest (Dentsu) is already reflected in its 14x 2012 PE, so the group maintains its ‘neutral’ rating. Finally, Publicis (underperform, price objective raised from €36.7 to €40.5) remains its least preferred agency. BoAML says the Dentsu buyback removes a key catalyst and will allow the market to refocus on margin concerns (flat in 2012 despite healthy top line growth), low dividend payout and high valuation relative to growth.
Global ad growth upgraded in 2012
Following upgrades to BoAML economists’ GDP forecasts in Germany and France, its Western European ad growth forecast has increased from -2.9% to -1.9% in 2012. The group has also upgraded its 2012 US growth forecast from 1% to 1.5% (GDP upgraded from 1.9% to 2.1%). Overall, its global ad growth forecast is up from 1.4% to 2% in 2012 but remains broadly unchanged at -0.1% in 2013.
Full Year results previews
WPP – results on March 1
BoAML forecasts organic growth to slow marginally from 4.7% in Q3 to 4.3% in Q4, implying 5.3% for the full year (vs company target of c5%). The group expects Q4 growth to be driven by the UK (+4.1%), US (+4.3%) and faster growing markets (+7.8%), with Western Europe lagging (+0.4%). Overall, it forecasts 8% full year group revenue growth to £10.1 billion.
Havas – results on March 1
BoAML forecasts Q4 organic growth of 3.3%, slowing from 7.3% in Q3 and resulting in 5.3% for the full year. The group expects growth to slow across Europe in Q4 (-0.9% decline in France, -1.9% in the UK and flat growth in the rest of Europe) but expects robust growth in North America (+6.3%), Latam (+16.6%) and Asia Pacific (+7.3%). Overall, the bank forecasts full year revenues of €1643 million.
Aegis – results on March 15
BoAML forecasts full year organic growth of 7.7% for the retained group, or 6.3% including Synovate. They expect Aegis Media organic growth to be driven by the Americas (+14%) and Asia (+19%), with Europe, Middle East and Africa lacklustre (+3.3%). Overall, BoAML forecasts full year retained group revenues of £1148 million.