• by Fern Siegel , May 8, 2023

S&P Global Ratings has assigned the Publicis Groupe a BBB+ rating, based on a solid operating performance.

The company forecast the agency will deliver 2% to 4% annual organic revenue growth above real GDP growth rates in 2023-2024, even with weaker economic conditions. It is also expected to sustain stable EBITDA margins over the next two years and generate a sizable free operating cash flow (FOCF).

“The upgrade also reflects the group's exposure to the sound U.S. market and ownership of faster-growing data and technology offering — mainly Publicis Sapient and Epsilon, which have delivered above 10% organic revenue growth in 2022,” reported S&P Global Ratings.

A big plus: Publicis has embraced new tech, such as AI, which adds to its operation efficiency.

In addition, its industry-leading profitability margins and low capital needs will translate into sizable FOCF after lease payments, exceeding $1.65 billion per year.

The ratings company says global ad agency holding groups can increase their top lines faster than their economies. One reason is their ability to refocus business portfolios to other areas, such as sponsorships and data-driven analytics, from traditional media-buying and creative.

S&P Global believes “Publicis is well-positioned to benefit from these trends because it has a balanced portfolio of specialized media, creative, and tech-driven functions each accounting for about one-third of its business.” It also gets a boost from Publicis Sapient and Epsilon, which are predicted to grow 4% to 6%.

“Our forecast for 2023-2024 incorporates our assumption of up to $660 million in annual spending on acquisitions (mainly to strengthen its data and technology capabilities), dividend payments, and share buybacks in line with the company's guidance,” S&P Global Ratings noted.