We initiate on Sky, WPP, Publicis and Informa and transfer coverage of RELX (upgrade to OP from N), Pearson (downgrade from N to UP), Wolters Kluwer (upgrade to OP from UP), DMGT (maintain N) and UBM (remain N). Our key calls are the OP rated RELX (high-quality assets with market-leading and sustainable positions, low cyclicality), Sky (overdone threats with opportunities outside the UK and in mobile and weaker Sterling) and WPP (higher yield and FCF growth vs Publicis, a clear financial model, more management stability and leading programmatic advertising and data/analytics assets).
ADVERTISING AGENCIES: We initiate on WPP with an OP rating (TP 2000p) and Publicis with an UP (TP €63): Both stocks trade on similar 2017E P/E and free cash flow valuations, but we believe WPP has 1) more management certainty as Publicis is due to change CEO in early 2017, 2) higher FCF growth over 2017/18E of 15% vs 6%, 3) a higher 2017E dividend yield (3.9% vs 3.3%), 4) lower risk as Publicis will have to work hard on its turnaround, and 5) we estimate an operating margin in 2018 of 16.3%, 100bps below the lower end of Publicis' target range (17.3-19.3%). Our 2017E EPS are c.2% above consensus for WPP and c.2% below for Publicis.