Agency Account Action: Sept moves highlight importance of scale
*New business activity slows in September
New businesses slipped in Sept to $0.8 bn, down from $1.3 bn in Aug and below the ytd average of $1.0 bn. Major agencies performed well with all in positive territory as new business came at the expense of independents. We see this supportive of our view on the importance of scale.
* WPP/PUB slow but stay positive; HAV regains some momentum
WPP delivered its 15th consecutive month of positive new business, a significant accomplishment, but momentum slowed having topped our table the last two months. Overall, September remained solid on several mid-sized wins including creative accounts for Dove Men+Care ($40 mn) and Lean Cuisine ($21 mn). Publicis also slowed after a strong August but remained in positive territory and started October well with the retention of Samsung. Notable wins include creative for Sands China ($50 mn) and global media buying for AirBnB ($50 mn). Havas, coming off three months of small losses, regained some momentum with a few small wins.
* Dentsu tops table; solid performances for Omnicom and IPG
Dentsu performed well, topping the table in its debut in our scorecard off a broad base of small wins. OMC performed well winning creative for Miller Lite ($110 mn) and Wild Wings ($40 mn). IPG also had a good month adding creative and media for Office Depot ($105 mn).
* 3Q preview: Lowering organic to reflect new GS GDP forecasts
We lower our average 3Q organic growth expectation for the EU agencies from 3.6% to 2.9% following recent revisions GS GDP forecasts in Europe, US, and China. Overall, we forecast sector organic growth to slow from 3.8% in 1H to 2.9% in 2H with FY falling from 4.0% to 3.4%. We expect Havas to lead 3Q with organic of 4.7%, WPP at 3.0%, and Publicis lagging at 1.0%. Despite lower organic, our 2014/15 EPS estimates rise by an average of 1% given better FX (all) and higher M&A growth (WPP).
* Reiterate CL-Buy on WPP; attractive entry point to quality asset
With shares down 13% in a month, we see this as an attractive entry point. WPP ranks Q1 in our IP framework given digital exposure and economies of scale. It trades at a 13% sector discount despite faster EPS growth (12% vs. 11%) and has 35% exposure to relatively healthy US ad markets.