* Increase forecasts, remains on Media Most Preferred list
We increase our organic growth forecast for FY14 to 5.2% from 3% and forecast
margin expansion of 30bps for 2014 and 50bps for 2015 and 2016 as growth flows
through and near term investment in staff normalises. The strong trends in new
business and recent organic growth further underline the turnaround and we remain
confident into 2015; Havas remains on our Media Alpha Most Preferred List.
* Strong organic Q2 onwards
Given the strong first half performance, even if Havas reported flat organic for the
remainder of the year the overall FY growth would be 2.7%. The comparatives are not
tough (Q313 1.2% and Q413 1.6%) and account wins provide confidence that strong
growth will continue, therefore we increase our FY14 organic forecast to 5.2% from
3%. This change alone increases our earnings forecasts by 2% mid-term.
* FX turns tailwind
In Q1 the FX headwind for Havas was -€12m and in Q2 was -€14m; by the end of the
year it will likely be a tailwind. More proactive measures than the market expected from
the ECB and renewed US strength have led to a sharp depreciation in the Euro. A
weaker Euro has three impacts: 1) it boosts economic growth which helps the GDPlinked
agencies such as Havas, 2) it staves off deflation fears, and, 3) it supports
corporate profits which is also beneficial for the agencies as advertising is oft viewed as
a percentage of revenue. We highlight that FX could improve further.
* Valuation: PT increases to €7 from €6.9
Havas is the best performing agency year to date and is now trading on 15.5x 2015E
EPS vs. the subsector on 14.1x and 7.6X EV/EBITDA vs. the subsector on 9.0x. Our DCF
derived price target increases to €7 from €6.9 driven by our increased forecasts.