WPP & Havas: Positive outlooks

WPP shares have fallen c10% over the last month, reflecting concerns over global macro risks, commodity cost inflation and the potential fallout from the Middle East and Japan, according to BofAML.

However, current ad data remains buoyant with WPP’s organic growth up +7.3% in January and February. WPP expects further recovery in ad spend this year from its 2009 cyclical low point, while factors such as the Olympics, US elections and Euro 2012 are likely to add 1-2% to global ad spend in 2012.

Nearly half of WPP’s organic growth assumption of +5.4% is coming from emerging market regions. BofAML says there are secular growth drivers alongside GDP expansion, with advertising coming of age as consumerism takes hold. Similarly, quality digital expertise remains scarce and highly valued by businesses, and WPP is the biggest player in the game, at c$4.2 billion of revenue (c29% of group).

Meanwhile, Havas, the owner of the Euro RSCG Worldwide advertising agency and the MPG brand, has appointed a new CEO – David Jones.

BofAML says “he is well known within the advertising community, and appears to bring both a more international approach and greater urgency on expanding the business. In our view this move signals clear growth ambitions”.

Vincent Bollore has indicated €200-300 million per annum could be spent on acquisitions through the next three years (group liquidity suggests the figure could be far higher).

The company has been through a five year turnaround programme to reduce costs, simplify the structure of the business and lower its balance sheet leverage. This leaves Havas in a strong position to pursue growth.

However, if acquisitions fail to materialise, BofAML predicts a buyout is a possibility (authorisation has already been given to cancel up to 40 million shares).

Havas’ revenue mix remains less attractive than its peers, with too much exposure to Europe at c54% of group (in particular Spain, Portugal and Italy, which represent c14%) and too little to emerging markets at 13.5%.