We recently maintain our Neutral recommendation on Dublin,
Ireland-based advertising titan,
WPP Group Plc.
(
WPPGY
).
The company over time has been acquiring or investing in
businesses across the world; all aimed at expanding the company's
operations in fast growing emerging markets and enabling access to
vast untapped markets in those regions.
In 2011, WPPGY made a number of acquisitions with roughly 24 in
new markets, 32 in new media and 8 in consumer insight. In the
first quarter 2012, roughly 10 acquisitions in new markets, 2 in
consumer insight and 2 in other areas were carried out. These
strategic acquisitions represent a major competitive advantage for
the company and enhance its creative reputation and co-operation
among the Group companies.
First quarter 2012 was good for the company; a trading update
for the quarter revealed roughly a 7.6% revenue growth on the back
of strength across all geographical regions and communication
services sector. On a constant currency basis, revenue grew by
7.4%.
For the full fiscal year 2012, management expects revenue
growth, excluding the impact of acquisitions and currency
fluctuations, to be over 4%. Operating margins are expected to
improve by 50 basis points. Over the longer term, management
expects above-industry average revenue growth, 0.3 points or more
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, a competitive and fragmented advertising/communication
industry with risks of losing market share and foreign exchange
fluctuations ever lurking in the scenario is a matter of constant
worry for the company. This advertising and communications services
provider competes with other industry players including
Interpublic Group of Companies Inc.
(
IPG
),
Omnicom Group Inc.
(
OMC
) and
Publicis Groupe SA
(PUBGY.PK).
Also, 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 loss of business.
The current Zacks Consensus EPS Estimates for WPP plc are $5.67
and $6.32 for the fiscal years 2012 and 2013, respectively. The
estimates represent a year-over-year growth of 5.39% for 2012 and
11.54% for 2013.
The stock also bears a Zacks #3 Rank, implying a short-term (1-3
months) Hold rating.
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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