(News Bulletin 247) – The advertising group recorded like-for-like growth of 5.3% in the third quarter, well above consensus. The group is raising its outlook for the current financial year.

After Alstom’s profit warning last week and LVMH’s disappointing publication on Tuesday evening, Publicis is putting an end to the bad series for the CAC 40.

Once again the advertising group delivers solid figures on the occasion of the publication of its activity for the third quarter, this Thursday morning.

The group published a net income of 3.24 billion over the period from July to the end of September, reflecting like-for-like growth of 5.3% year-on-year.

This is significantly more than the consensus of analysts which was 3.6%, according to Société Générale. The bank also notes that the consensus range went from 3% to 4.9%. Publicis has therefore even exceeded the highest expectations of design offices.

“A fantastic series of results”

Societe Generale thus praises “a series of fantastic results, well above the company’s implicit forecasts, the consensus and, above all, the estimates of the ‘buyside’ (investors, to simplify, Editor’s note)”.

“Thanks to the strength of our model we outperformed,” Arthur Sadoun, Chairman of the Publicis Board of Directors, told analysts.

As a result, Publicis shares took off this Thursday, gaining 4.1% around 10:30 a.m. and by far the strongest increase in the CAC 40 (Thales, second, gained 1.6%).

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Europe exceeds expectations

Certainly, sequentially, revenue growth is lower than in previous quarters. In the second quarter, Publicis’ organic growth reached 7.1%. But Publicis had to deal with a high basis of comparison.

As Société Générale points out, the group benefited in the third quarter of 2022 from an “optimal alignment of the planets”, with growth on a comparable basis which then amounted to 10.3%. In this context, Publicis’ performance is remarkable.

In addition, notes the bank, by taking the year 2019 as a reference, which is used more by certain groups because it is not affected by the ups and downs in activity due to the pandemic or the conflict in Ukraine, Publicis is accelerating further. Growth amounted to 22% in the third quarter compared to the same period of 2019, compared to 20% in the second quarter and 18% in the first. “We are outperforming the sector in terms of growth,” assured Arthur Sadoun when presenting these figures.

In detail, the company recorded a performance in the United States, certainly lower than overall organic growth, with an increase of 3.2% over the quarter to 2 billion euros, in a macroeconomic context that was however “more difficult” , explained the chairman of the board of Publicis, who described this growth as “very solid”.

Europe exceeded the group’s expectations, with an increase in like-for-like revenues of 10.7%, to 769 billion euros, almost as good as that of the third quarter of 2022 (+11.1% ).

Epsilon, the alpha of the company

In terms of different activities, Epsilon’s dynamics stand out. This company bought by Publicis in 2019 specializes in “data” (data analysis for marketing). The company achieved like-for-like growth of 10.5%, despite the demanding comparison base (+14% in the third quarter of 2022). Epsilon benefited from strong customer demand for proprietary data management contracts, explained Arthur Sadoun.

Sapient, its digital transformation division, on the other hand, grew “only” by 1.2%. The manager indicated that companies had adopted a more “conservative” approach in their investment spending (“capex”) which led to project postponements.

In light of this good publication, Publicis has raised its objectives for the current financial year. The group anticipates an increase in its revenues on a comparable basis now of between 5.5% and 6%, compared to “around 5%” previously, an operating margin of 18% compared to “close to 18%” previously, and a cash flow free close to 1.7 billion euros compared to “at least 1.6 billion”, previously.

A diversified and resilient model

Arthur Sadoun showed his confidence, citing three reasons. First, the group continues to gain market share. Over the last five years, Publicis has won $10 billion in media billings, or 2.5 times more than its closest competitor, he assured. Second, the company is now more resilient to economic cycles, thanks to a diversified revenue distribution across media, data, and digital transformation. Thirdly, “our organization is agile”, argued the manager, which allows the group to post margins well above those of the sector.

Sarah Thirion of TP ICAP Midcap, evokes “a definitely more solid model”. Societe Generale, for its part, believes that the group’s balance sheet “is almost perfect over the last two years”.

“There is now broad consensus that Publicis is outperforming its peers, that the product mix has been scaled, that cash conversion is strong and that margins are at their highest level ever. 2023 earnings per share will be 35% higher than in 2019,” she explains.

But yet the valuation still turns out to be too low for its liking, which the bank attributes to market fears of an economic slowdown in 2024 which could lead to a “hard landing”, that is to say, to simplify , a drop in inflation which would result in a recession. Société Générale estimates that the Publicis share price at Wednesday’s close suggests a 55% probability of a “hard landing”, “which we find hard” given the company’s flexible and adaptable model, considers- she said.