• by Joe Mandese  @mp_joemandese, November 3, 2021

The good news is that macro factors like supply-chain and/or economic recovery concerns do not appear to be impacting the fundamentals -- or investor confidence -- of the major publicly-traded agency holding companies. The bad news is that there is growing skepticism that investments in new technology and data services can drive agency growth. That's the assessment of the Big 3 -- Omnicom, Publicis and Interpublic -- tracked by the equity research team at BMO Capital Markets.

In a new report, "Agencies Earnings Recap: Steady Recovery, but Lacking Catalysts," sent to investors Tuesday, BMO's Daniel Salmon writes that their third quarter results do reflect a "consistent recovery across diversified client bases," and cites their continuing "operational efficiencies," but he implies there are longer-term concerns about their ability to grow amid a rapidly changing consumer marketing landscape.

"We are relatively balanced, but struggle for catalysts," he concludes, adding that among the Big 3, BMO is currently "long" on Omnicom's and WPP's and "short" on Interpublic's stock.

"WPP offered the most upside surprise relative to expectations and was deservedly the out-performer of the group, helped somewhat by the muted reactions to OMC and IPG ahead of it," Salmon added, noting, "GroupM’s 19% organic growth stood out, and reflected strong new account momentum, and the important retention and expansion of business with Unilever.

"We foresee flat margins for WPP next year vs. declines for Omnicom and Interpublic as we expect increased travel and entertainment expenses to be offset by WPP’s cost efficiency programs."