ODDO - HAVAS - upgrade to BUY / Q2 to exceed forecasts.
HAVAS (market cap €2.3bn) – upgrade to BUY. 20% upside on our €7 TP.
* Unlike Publicis, Havas is likely to surprise positively on Q2 (e LFL +5% vs
cons. +4% vs Q1 +3%), which could lead consensus to upgrade their forecasts
(solid net new business, improved US, football impact, relatively dynamic
advertising WW).
* We raise our EPS 014/15 by an average 5%, which puts us 5% above consensus.
* In the attached note, we identify numerous levers for margin growth and book
a long-term EBIT margin of 15.5% vs 15% previously (vs 13.8% in 13 and e14.3%
in 14).
* We forecast net cash of €80m by end 15 which we expect to trigger a buy back
by Bollore. This would reflect a similar scenario to the 2012 buyback (12%)
which boosted EPS by 11% and re-rated the share price (AMF again likely to
comply with not forcing a take over as Bollore owns 36%).
* “Self help” in the US has led to solid contract gains (ie Green Mountain
Coffee, Liberty Mutual and Dish) at Havas Worldwide which should accelerate H2
as management changes continue to have effect (eQ2 +2% vs Q1 +3.7%). Arnold will continue to suffer despite a recent gain (John Frida).
* The world advertising market is expected to grow by av. 5.5% over next 3
years.
* Despite our recent message of caution on advertising trends in France (e25%
of sales), Havas has been gaining new clients thanks to the BETC agency (Louis
Vuitton, Total and a new Air France campaign). The endless IPOs and M&As have
been very beneficial to Havas. This is reflected in our forecasts Q2 (Europe e
+4.1% vs Q1 +2.3%)
* Speculative – the last remaining independent advertising agency.
* VALUATION is attractive (15 P/E/ 13.6x vs 10 year av. 17.4x / EV/EBITA 9.2x
vs 10.9x, EV/EBITDA 7.8x vs 8.7x / EV/sales in line with average 1.3x).