May 30 -
Summary analysis -- Publicis Groupe S.A. -------------------------- 30-May-2012
CREDIT RATING: BBB+/Stable/A-2 Country: France
Primary SIC: Advertising
Credit Rating History:
Local currency Foreign currency
14-Dec-2005 BBB+/A-2 BBB+/A-2
The ‘BBB+’ rating on France-based satellite Publicis Groupe S.A. reflects Standard & Poor’s Ratings Services’ assessments of the group’s business risk profile as “ satisfactory,” and its financial risk profile as “intermediate.”
Publicis’ satisfactory business risk profile is underpinned by its position as the world’s third-largest advertising agency group, its good geographic diversity, sound positions in digital services, and good organic growth track record. Furthermore, the group benefits from industry leading profitability. These strengths are partly offset by exposure to cyclical customer advertising spending, the competitive nature of advertising and marketing services, and Publicis’ more limited diversification in marketing services than its main global peers.
Publicis’ intermediate financial risk profile mostly reflects its high discretionary cash flow conversion, and sound balance sheet structure, despite its EUR644 million buy back of its shares held by ex-shareholder, Japan-based advertising group Dentsu Inc. (not rated), in February 2012.
S&P base-case operating scenario
Owing to Publicis’ sound 4.1% organic growth recorded in first-quarter 2012, we have slightly raised our full-year 2012 forecasts for the group under our base case. While we previously believed that the group could struggle to achieve meaningful organic growth, we now think its revenues will grow organically in the low to mid single digits in percentage terms this year. Still, we believe that posting organic growth in the second half of 2012 could prove more challenging, even though the summer Olympic Games and the U.S. elections, events which traditionally push up advertising spending, fall in the period. We also factor in Publicis’ high comparison base last year in the second half, as well as the weak global economic outlook, which may translate into reduced corporate profits and a wait-and-see attitude from advertisers in the latter part of 2012. For the same reasons, we believe that advertising agencies such as Publicis may struggle to post significant organic growth in 2013, absent a marked improvement in the global economy.