Dyer & Blair Investment Bank analysts say the marketing firm is likely to get intense competition from local and multinational advertising agencies.
The investment bankers forecast only 0.7 per cent compounded annual growth rate (CAGR) in the next three years.
Thanks to the expected lower revenues, the price of the stock is likely to fall by more than six per cent compared to the current price of about Sh16 a share, they said, while advising investors to “hold” onto the share.
Marketing services firm WPP Scangroup #ticker:SCAN is likely to register flat revenue growth in the next few years, but will see double-digit growth in digital advertising and research. Dyer & Blair Investment Bank analysts say the marketing firm is likely to get intense competition from local and multinational advertising agencies, negatively impacting on its total revenue. The investment bankers forecast only 0.7 per cent compounded annual growth rate (CAGR) in the next three years. In their revenue projection based on the expected regional growth by World Bank, which forecasts the sub-Saharan region will grow at 3.2, 3.5 and 3.6 per cent in financial years 2018, 2019 and 2020, respectively. Thanks to the expected lower revenues, the price of the stock is likely to fall by more than six per cent compared to the current price of about Sh16 a share, they said, while advising investors to “hold” onto the share. “We issue a HOLD recommendation on WPP Scangroup based on a one-year target price of Sh15.05, representing a 6.2 per cent downside from its current price of Sh16.05 (Sh15.50 yesterday). “We base our recommendation on an estimated three-year revenue CAGR of -2.4 per cent to Sh13.2 billion in financial year 2020,” they said.
“We believe [the decline in performance] will be primarily due to a strong competitive environment in the main markets as well as the current consumer shift to digital media and self-advertising.” For the regional subsidiaries, Dyer & Blair forecast positive but minimal growth. “We project a 0.7 per cent, three-year CAGR in regional subsidiaries billings to Sh4.3 billion in financial year 2020, which represents a 33.0 per cent contribution to total revenue. “We project a continued double digit growth in billings from the digital and research disciplines,” said Dyer & Blair. Arising from costs containment, the marketing firm is expected to see an improvement in earnings before income tax, depreciation and amortisation (EBITDA) as a proportion of total sales (EBITDA margin) in the next three years. “WPP Scangroup continues to face stiff competition in sub-Saharan Africa from local and multinational advertising competitors. This is expected to have a negative impact on revenue.”
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