London, UK, 23 February 2021

 Dentsu Group (4324): Initiation - Simplification to boost growth and margins

Dentsu is making good progress with its plans to streamline its business and integrate its offering to better address the needs of its blue-chip client base, including 95 of the world's top 100 advertisers. The balance sheet has been strengthened by the sale of most of the Recruit shareholding and Dentsu is considering a sale and leaseback of its Tokyo headquarters. A ¥30bn share buyback is intended for FY21. Restructuring inevitably means some short-term disruption, but this should drive revenue growth (targeted at 3-4% CAGR FY21-24) and improve margins. The valuation, while in line with peers, is yet to reflect the programme's likely benefits.

With strong recent performance on news of the restructuring and asset realisations, the valuation has now caught up with those of the global holding company peers. Successful implementation of management's plans, simplifying the structure and driving profitability, should help drive shareholder value and underpin the rating. 

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