• by Paul Gough , October 7, 2003

Largely on the strength of its media buying units, Publicis Groupe, has been rated as one of the best-positioned Madison Avenue's agency groups, a top Wall Street firm said Tuesday.

The equity research team at Bear Stearns, which initiated coverage of the parent company of Starcom MediaVest and Zenith Optimedia, said Publicis has the right mix of businesses and locations as economic conditions pick up.

Alexia Quadrani, who tracks Madison Avenue for Bear Stearns, noted that 45% of Publicis' business comes from the United States and that it was heavily weighted (77%) in advertising - particularly media buying - which was growing faster than the marketing services that make up the rest of Publicis and other ad-agency holding companies. Thirty-nine percent of its revenues come from Europe, where the ad market recovery is much spottier than conditions in the United States.

The firm rated Publicis as "peer perform," which Bear Stearns defines as a stock that is projected to perform about in line with the analysts' similar coverage over the next 12 months. It's a neutral rating, neither buy nor sell. Other companies measured "peer perform" by Bear Stearns include WPP Group, which owns Mediaedge:cia and MindShare, and Interpublic Group of Companies, which owns Initiative Media and Universal McCann as well as MAGNA Global. Omnicom Group, which includes OMD Worldwide and PhD, is listed as "outperform." That means Omnicom is projected to outperform others in the industry.

"We are optimistic on Publicis' future given its strong industry positions, encouraging recent financial results despite numerous challenges, and good cash generation capabilities," Bear Stearns' Quadrani. She said she particularly liked Publicis' position in media buying, with $34.6 million in billings in 2002.

"This is a business where scale is important, in our view, and Publicis' strong position could give it an edge in upcoming media account reviews," Quadrani wrote.

Yet Publicis also has some challenges to face, according to Bear Stearns. It highlighted Publicis' integration of Bcom3 into the company. Bear Stearns said that Publicis remains at risk of client and employee defections for two years, particularly with its decision to close Bcom3 agency D'Arcy Masius Benton & Bowles at the end of last year.

But echoing many in the analyst community as they discuss the near-term future for the advertising and media industries, Bear Stearns warned that things aren't rosy everywhere.

"The global advertising market remains fragile, with poor visibility and lingering hesitation on the part of advertisers to spend in the face of an uncertain economy and concerns over corporations' own profitability," Quadrani wrote.