New York: Chairman of Publicis GroupeMaurice Levy says shareholders shouldn’t worry about the 10% drop in the advertising company’s share price this year or sales that missed forecasts in three of the past four quarters.
“It’s not a big problem,” Levy, 65, said this month. The price drop only makes the stock more attractive, he said. “It’s not a bet to invest in Publicis, it’s just a sound decision.” But, some shareholders have concluded otherwise.
Levy’s failure to diversify and Publicis’ reliance on big accounts such as General Motors Corp. and Procter & Gamble Co. leave the Paris-based company vulnerable to a US recession, said Tim Nollen, a Bear Stearns & Co. analyst in New York. The $1.3 billion (Rs5,135 crore) acquisition of online ad agency Digitas Inc. in February put the company in competition with Microsoft Corp. and Google Inc. Publicis, owner of the Leo Burnett and Saatchi & Saatchi advertising agencies, fell 4 euro cents to €28.77 (Rs1,614) on Wednesday in Paris.
The shares have dropped more this year than Omnicom Group Inc., based in New York, and London’s WPP Group Plc., the two biggest advertising services firms.
An expected bump in advertising next year from US elections and the Summer Olympics in China may not be sustained in 2009, said analyst Charles Bedouelle at Exane BNP Paribas in Paris, who cut his rating on Publicis to “neutral” last month.
While larger peers have diversified more into areas such as brand consulting and public relations, Publicis got 66% of revenue from advertising in the first half. To keep expanding, Levy will have to rely on acquisitions, according to Citigroup analyst Thomas Singlehurst in London, who told clients last month to sell Publicis shares. The stock price will continue to lag behind its competitors, said Bedouelle.
Levy dismisses questions about the growth potential of the company he built into a global advertising power after taking over in 1987. “There have very often been fears about Publicis,” Levy said. “Every time the concrete answer is that this is groundless and people should not worry.”
The loss of big accounts in late 2005 and in 2006 with the US Army, Sprint Nextel Corp. and General Motors’ Cadillac, as well as a slowdown in the US advertising market, held Publicis’ revenue growth to 1.6% in the first half, excluding the impact of currency fluctuations and acquisitions.
Clients such as Procter & Gamble’s Oral-B dental-care brand are responding to Levy’s pitch to buy a comprehensive package of online and offline ad placements, he said. He promises proof of resurgent sales growth on 29 October, when Publicis reports third-quarter revenue.
Publicis, which reports sales quarterly and profit twice a year, lowered its forecast for full-year sales growth to 4-5% in July, after previously saying it would increase by 5%.