Media

WPP/Publicis: ad mission price | Financial Times


Stopping advertising to save money, said Henry Ford, is like stopping your watch to save time. This from a man who for a time made cars in black alone. Europe’s media agencies, such as London-listed WPP and France’s Publicis, could do with more such advocates. Investors worry that the conglomerate structures of ad groups do not work. Shares have performed poorly. That should reverse in the year ahead, unless economies dip heavily.

WPP, once the benchmark of media supermarkets, had already begun to splutter well before its founder Martin Sorrell left the headquarters in April. To keep the stock market happy WPP bought smaller agencies to expand sales, spending an average of £360m annually. Growth slowed anyway. When net debt began to rise, shareholders began to sell. New chief executive Mark Read aims to simplify the group and cut borrowings. Its shares are their cheapest in nine years. A partial sale of its market data research service, Kantar, could raise enough to halve its debt.

Publicis, WPP’s French rival, has a similar portfolio structure. It already began to address its sluggish profit growth last year. It has cut costs, and its gross margin is much higher than that of its British rival. It too has begun to discard businesses, including its lossmaking Publicis Health Services unit this year. Its efforts have had some effect on its valuation, though small. Its shares are no longer the very cheapest among its largest peers on a price to forward earnings basis, compared with three years ago.

Ford had to moderate his stance on what his customers want. So, too, WPP and Publicis are adjusting to a changing world. But in WPP’s favour is its smaller exposure to the US than all its major peers. Less than 40 per cent of earnings comes from the US market, where a slowdown could hit earnings. A few client wins could well turn heads in the stock market. Those seeking contrarian value ideas could do worse than owning these two.

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