Report
Hamilton Faber

Ad Agencies: Upgrading IPG and OMC to Neutral

We are upgrading IPG and Omnicom and believe much of the negative outlook is now priced in; e.g. both stocks had a very modest reaction to WPP's Q417 miss. Group results this quarter were very mixed with WPP's lowered long term outlook of 5-10% EPS growth (vs. 10-15% previously) probably the biggest negative as it implies structural issues are here to stay and margin expansion is increasingly unlikely. However, with our OMC/IPG forecasts of 1.9/2.0% organic revenue growth in 2018 (at the low end of 2-3% guidance for both) and 1.6%/1.7% in 2019, we are just 2-3% below 2019 EPS consensus. Our estimates imply 6% underlying EPS growth and we consider a near trough ~25% discount to the market multiple (i.e. ~13x) as appropriate for this sort of outlook. Applying to forward 12m earnings gives PTs of $76 and $23 for OMC/IPG apiece and we are upgrading both to Neutral.
Underlyings
Interpublic Group of Companies Inc.

Interpublic Group of Companies is an advertising and marketing services company. The company's segment include: Integrated Agency Networks (IAN) and Constituency Management Group (CMG). Within IAN, the company's agencies provide an array of communications and marketing services, each providing a range of solutions for its clients. In addition, the company's domestic integrated agencies provide a range of advertising, marketing communications services and/or marketing services and partner with its operating divisions as needed. CMG provides clients with services, including public relations, meeting and event production, sports and entertainment marketing, corporate and brand identity, and marketing consulting.

Omnicom Group Inc

Omnicom Group is a holding company, engaged in providing advertising, marketing and corporate communications services. The company's networks and agencies provide a range of services in the following fundamental disciplines: advertising, customer relationship management, public relations and healthcare. The company's Service offerings include, among others, advertising, branding, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management, digital/direct marketing, digital transformation, entertainment marketing, experiential marketing, field marketing, financial/corporate business-to-business advertising, and imaging.

Provider
Atlantic Equities
Atlantic Equities

Formed in 2003 by an established team from Cazenove, one of the most respected investment banks in the UK, Atlantic Equities conducts and publishes fundamental, bottom up research on mid and large cap US companies.

Atlantic provide order execution through a wide range of DMA products and algorithmic trading suites.

Analysts
Hamilton Faber

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