We currently maintain a Neutral recommendation on Dublin,
Ireland-based advertising company,
WPP Group plc
(
WPPGY
).
Over time, the company has been making concerted efforts to
expand its operations in fast growing emerging markets by making
strategic acquisitions and making forays into vast untapped markets
in those regions. Most of the acquisitions are given effect through
the company's wholly-owned subsidiaries.
In 2011, WPPGY acquired roughly 24 businesses in new markets, 32
in new media and 8 in consumer insight. These acquisitions are sure
to enhance the company's competitiveness among other Group
companies including
Interpublic Group of Companies Inc.
(
IPG
)
,
Omnicom Group Inc.
(
OMC
)
and
Publicis Groupe SA
(PUBGY.PK). Going forward, WPPGY plans to spend around £300 million
annually on acquisitions.
Moreover, the Group is positioned well to benefit from the key
industry trends of developing world advertising market as depicted
in its last reported financial results and future guidance. The
company posted impressive results for the fiscal year 2011 with a
19% increase reported in earnings per share and 7% rise in
revenues, backed by strength across all geographical regions and
communication services sector.
Over the longer-term, management expects above-industry average
revenue growth, roughly 0.3-0.6 points annual improvement in staff
cost/revenue ratio and 0.5 margin points or more improvement in
operating margin. PBIT is expected to improve by 10%-15% p.a. on
the back of margin growth and benefits from small and medium-sized
acquisitions.
However, competitive and fragmented advertising/communication
industry, ever risking the loss of market share and foreign
exchange fluctuation is a matter of concern. Besides, the company's
international operations expose it to the risks of local
legislation and unstable political conditions. Furthermore,
excessive dependence on a few large clients also makes the company
more vulnerable to volatility and loss of business.
The current Zacks Consensus EPS Estimate for WPP plc is $5.75
and $6.30 for the fiscal years 2012 and 2013, respectively. The
estimate represents a year-over-year growth of 6.84% for 2012 and
9.53% for 2013.
INTERPUBLIC GRP (
IPG
): Free Stock Analysis Report
OMNICOM GRP (
OMC
): Free Stock Analysis Report
WPP PLC (
WPPGY
): Free Stock Analysis Report
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