Market analysts are supporting the rise in the advertising industry after a string of strong March quarter earnings results from global holding companies.
Investment banks and rating agencies see the advertising industry as a leading indicator of post-pandemic economic upswing.
Macquarie Bank improved its ratings on Publicis, Omnicom and WPP to outperform, as did Interpublic Group (IPG), which showed a rapid recovery among advertising holding groups.
Bank analysts expect growth to be supported by brands chasing consumer money as business confidence rises.
Moody’s analysts also raised the ratings of advertising agencies. WPP, Omnicom, Publicis and IPG moved from negative to stable.
They expect operating performance to continue to improve over the next year as the economy recovers.
“We expect global ad spend to grow in the range of 6% to 8% this year (including cyclical events,” the analysts wrote in a note to clients.
Ad spending will rebound as business conditions, consumer sentiment and household consumption improve, they say.
In Australia, the SMI (Standard Media Index) shows growth in media agency bookings after years of decline.
Ad spend rose 2.1% in March and forward bookings show the rise continues. However, most analysts believe the industry won’t return to 2019 levels until next year.
At the holding company level, Moody’s says IPG has strong creative execution and competitive marketing services product offerings that are generating strong cash that has remained resilient during the pandemic.
“The stable outlook reflects IPG’s strong execution of operating performance, focus on cost management and exposure to client verticals that were less impacted by the contraction in global advertising spend during the COVID-19 health crisis. COVID-19,” analysts say.
Moody’s changed WPP’s outlook from negative to stable after the world’s largest ad agency reported better-than-expected March quarter results
In a note to clients, analysts say they expect WPP’s revenue, less pass-through costs, to grow organically 4% to 5% annually 2021-22, driven by “more favorable advertising demand and the company’s continued implementation of the growth restoration strategy”.
The company’s overall operating margins fell to 12.9% in 2020 from 14.4% in 2019 as the impact of COVID-19 was partially offset by tight cost control.
“We expect margins to gradually return to pre-pandemic levels over the next 12 to 24 months, but remain low relative to industry peers,” Moody’s said.
Analysts say Omnicom Group has a customer-centric business model that delivers strong creative execution, valuable market insight and competitive marketing services product offerings.
“The outlook also reflects our confidence that Omnicom will continue to effectively navigate the muted, albeit improving, ad spend environment, manage operating expenses and return to positive organic revenue growth at from the second quarter of 2021 and all of 2021,” the analyst said.
The outlook, according to holding companies reporting March quarter results:
WPP: “Comparable revenue less pass-through costs in the first quarter were strong and we continue to exercise tight cost control. While these trends are encouraging, uncertainty persists in a number of our markets. WPP expects organic growth (defined as like-for-like revenue less pass-through cost growth) of mid-single-digit percent and an overall operating margin in the range of 13.5 to 14.%.
Omnicom says it is positioned for a “very strong recovery” in 2021. The company expects its global business to post positive organic revenue growth in the second quarter of this year and for the full year 2021. “At the same time, we know that we must continue to monitor the COVID-19 situation and adapt to any unforeseen challenges that may arise. If 2020 has taught us anything, it is in expecting the future. unexpected.
IPG: Reported better-than-expected March quarter results and forecast organic growth of 5% to 6% for full year 2021. “…we are seeing cautious optimism from customers, and the tone of business has firmed in recent months Reopenings, fiscal stimulus and vaccination programs in a number of our largest markets to provide a tangible boost to economic activity and commercial demand.
Publicis: In the three months ending in June, the global advertising group expects to recover between 60% and 80% of what it lost in the same quarter of 2020, which implies organic growth between 8 % and 10%, However, the company is still cautious, saying that the crisis is not over yet. Publcis has not released revenue forecasts for 2021.
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