The difficulties in France are an epiphenomenon

It is no exaggeration to say that the Publicis action passes a bad fall on the Paris stock exchange. Between, on the one hand, the difficulties encountered by the network Publicis in France with the departures of the Presidents of Publicis Board and agency Marcel, the loss of budget SFR (history for the network), the absence in the final of the major competitions (EDF, RATP...) that animated the French market and, at the level of the group, third quarter disappointing in terms of income, a warning surprise on organic growth for the end of the year and the output of the action of the flagship index of the Paris stock exchange, "news flow", as the financial and fellows, was particularly bad.

The stock market is very too, say some largely fact the echo of these setbacks. Since the beginning of the month of October, the Publicis action has widely under-performed a CAC 40 which, at the same time, returned the summits. In absolute terms, the decline of Publicis was almost by 10 between early October (31,65 euros) and late November (28,70 EUR), approximately 600 million euros of market capitalization in smoke. This underperformance is also to put in parallel with a very erratic course of the action since the beginning of the year since it is successively mounted over 33 euros for down below 28 euros.

Difficult to put into perspective

The recent sanction seems a little too harsh in the eyes of the majority of analysts, to explain it, prefer to speak of hole of air and a certain irrationality on the part of investors rather than questioning of the model of the group. From a qualitative perspective first, the difficulties experienced by Publicis Board the emblem of the Group are relative, they say.

"The market responded abusively by focusing on the taunts by the France group Publicis is a group based in France and, in the State of mind of many investors, it is very exposed to his country of origin." They were then widespread example of the France, where the situation is certainly not easy, the whole world. "But do not forget that Publicis is only about 10 of its revenues in the hexagon", notes one of them.

International presence

In 2005, 4.13 billion euros of revenues from the group, 424 million came from the domestic market. Distribution geographic Publicis revenue about 40 for North America, 40 for Europe and 20 for the rest of the world reflects little or less that of the global advertising market, which enables the group to be present on the two main world markets as emerging markets growing. The difficulties in France are an epiphenomenon.

Of the misadventures of Publicis during the fall, analysts mostly chose essentially in their eyes, that is, the slower growth in the third quarter. On the part of a group that has consistently better than the expectations over the past years, the message is not well spent. Especially that, in July, the publication of the results of the first half once again demonstrated the dynamism of Publicis, which had also been part of his optimism for the end of the year 2006. The hole of air in the third quarter with organic growth reduced to 2.6, after 6.8 in the first half and 7.3 in the second quarter was more disappointed investors.

The explanations given by the Group the postponement of several campaigns by important clients in the car or the pharmacy in the United States, therefore growth almost zero on this territory and willingness to focus on customers more profitable in Asia in were not considered convincing. "An accident", according to an analyst.

An accident, it alone does not justify nor the sanction stock market since the gap between the income expected by consensus (1.04 billion euros) and published for the third quarter revenue 2006 (1,013 billion) is only of EUR 30 million.

The theory of the accident is also supported by the excellent level of earnings of new budgets recorded by the group in the third quarter. A $ 1.2 billion, these gains are comparable to the $ 1.6 billion in the first half. Even after the underperformance of the third quarter, Publicis is still much better than its French competitor Havas and displays of performance comparable to those of the British WPP. The American Omnicom, world leader in the sector, indeed, him, much better than its competitors.

Expertise appreciated

This is no less prevented several offices to adopt a more prudent message to give appointment for 2007. In early November, the UBS Bank thus lowered his opinion to "neutral" from "buy" above. Lowering more due to economic reasons to a structural change in the opinion of the analysts at the Swiss Bank. "To be clear, our decision to lower our recommendation is not based on the change in our fundamental position long term", believe the UBS analysts, who say "love story" Publicis.

Over the coming years, the digital revolution in media will indeed disrupt the business of advertising agencies.

In this context, the expertise developed by the French group via ZenithOptimedia and Starcom its two purchase space and Council media networks, enabling it to be the world leader in this area is appreciated by investors. Basically, a single weak point is noted: the weakness of the group in British rival WPP studies.

If they appreciate the Group's strategy, many analysts see no catalyst in the short term for the title. "Investors want to see confirmation of a return to strong growth in revenue, which will not happen before the beginning of next year," says UBS.

An "opportunity to purchase".

In the current context, analysts therefore expect signs tangible and, indeed, the publication of the results for the full year to be a new idea. For them, the year 2006 is over: the group will display a slightly greater than 5 organic growth despite an "official" forecast of 5 and financial results will be consistent with the forecast. Not new bad surprise waiting, therefore, but not good news either. The Publicis action therefore is likely to remain confined under 30 euros, which makes it an "opportunity to purchase", according to experts, since the objectives of the title course spread out between 31 euros and 36 euros.

Cabinet Finance Associates recalled as well that the undervaluation of the Publicis title went increasing since spring in a sector of the media who also struggles to convince investors. "Publicis fundamentals remain strong but they are not sufficiently valued by the market." On the one hand the values because media are less appreciated since early 2005, on the other hand because Publicis has disappointed recently. "For the moment, the market therefore prefer less interested in the title", thus note Daniel Beaumont, the Director-General delegate to the cabinet, which, in his model, arrives at a value of 38 euros per share.