Friday, 14 February 2014

Interpublic - ok Q4s/guidance...even if the market doesn't like it today

Back in October, the global advertising company Interpublic disappointed the market centred on some disappointing trends in Europe.  I also noted that:

'It is interesting looking at Interpublic following the Omnicom results earlier in the week.  Organically Omnicom grew at 5% in Q3 in the US, whilst Interpublic grew at 3.7% (internationally the two were both 1.6%).  Additionally Omnicom's margins are noticeably higher (11%+ vs 8.3%).  Interpublic should be able to continue to improve margin performance as the two businesses are not that different (and post the merger with Publicis, Omnicom will be looking to raise margins further)'

So how are the Q4 numbers looking?  Well there was some good and some less good.  The company release notes that:

'Full year 2013 revenue grew to $7.12 billion, compared to $6.96 billion in 2012, an organic revenue increase of 3.7% for the fourth quarter of 2013, and 2.8% for the full year...Fourth quarter results include a pre-tax charge of $60.6 million for restructuring, primarily related to Continental Europe...Operating margin for the fourth quarter of 2013 was 18.1%, and 9.3% for the full year, excluding the impact of the charge; inclusive of the charge, operating margin for the fourth quarter of 2013 was 15.3%, and 8.4% for the full year'

So better performance in Q4 and although still lagging Omnicom's full year 14.2% operating margin and 3.7% organic growth, I did note that in Q4 Interpublic's growth of 3.7% was better than their peer (who achieved 3.2%). 

Forward guidance was fine at a '3-4% organic revenue increase and 10.3% or better operating margin in 2014'

But, as I write, the shares are down over 3% on the day.  So what is going on? 


The European charge blurred numbers and meant that they missed stated analyst expectations.  To me though, the superior Q4 progress combined with a good outlook was solid enough.  Additionally I note that the company bought back shares at a price just under US$17 during Q4 plus announced an additional US$300m buyback (just over 4% of market cap) and a further enhancement to the dividend taking it closer to an annualised 2%. 
As the chart above shows, over the last six months, any weakness below the US$16 has seen support come in for the share. 

With net debt x1.5 ebitda the balance sheet is fine and plugging the margin guidance into 2014 forward revenue expectations puts the company around x10 EV/ebit.  It feels right to embrace the sub US$16 level again to augment holdings if the opportunity comes up.


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