Publicis Investment

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Given at Value Investing Seminar July 2012

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Publicis Investment

  1. 1. A SIMPLE STOCK IDEADon Fitzgerald, CFAFund Manager, Tocqueville Value Europedfitzgerald@tocquevillefinance.fr 9th Value Investing Seminar Trani, Italy - July 2012
  2. 2. MY STOCK IDEA: High Returns (Capital / Margins) Sustainable Returns Growing Business - EPS growth 15% p.a. since 1994 Solid Management Soft Cyclical Highly Liquid Large Cap ………….trades at 7x EBIT 2
  3. 3. MY STOCK IDEA IS 3
  4. 4. MY STOCK IDEA IS: 4
  5. 5. MY STOCK IDEA:World’s 3rd Largest Advertising Agency Group Listed: Paris Market Cap: EUR 7 billion ISIN: FR0000130577 Free Float: 90% - Daily Volume EUR 30m 5
  6. 6. MY OWN ADVERTISING Ranked 10th/108 in category since inception (from 31/03/00 to 30/06/2012) Source: Europerformance 6
  7. 7. PUBLICIS BUSINESS OVERVIEW Source: Publicis data 7
  8. 8. PUBLICIS BUSINESS OVERVIEW Source: Publicis data 8
  9. 9. PUBLICIS BUSINESS OVERVIEW EBIT BY REGION ( FY 2011) 18% 56% 26% North America Europe Rest of the world Source: Publicis Data 9
  10. 10. PUBLICIS BUSINESS OVERVIEW Source: Publicis data 10
  11. 11. PUBLICIS BUSINESS OVERVIEW Source: EXANE BNP Paribas 11
  12. 12. DIGITAL OPPORTUNITY Fastest growing media segment (market growth + 10%) Share of Client Spend accruing to Agency rises Margins Similar to Group Levels Publicis Early Mover 12
  13. 13. DIGITAL NOT THREAT Dis-intermediation Limited Risk • Fragmentation and Complexity of Multimedia World • Advertisers want Choice • IQ + TQ + EQ1 = Success 1 I = Intelligence, Insight; T = Technology; E = Emotion 13
  14. 14. HIGH RETURNS - CAPITAL Pre-Tax ROCE (%)1716151413121110 9 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cash conversion > 100% - capex light / negative operating working capital Source: Tocqueville Research 14
  15. 15. HIGH RETURNS - BEST IN CLASS MARGINS EBIT MARGIN (%)171513119 PUBLICIS7 Average5 Competitor3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 * WPP plc, Omnicom Group, Interpublic Group, Havas SA and Aegis Group plc Source: Bloomberg data 15
  16. 16. HIGH RETURNS SUSTAINABLE Need Scale, Global Reach, Client-dedicated Resources Oligopoly – 4 Global Agency Groups – No New Global Network for last 20 years No Long-term contracts but 90% retention rate 16
  17. 17. HIGH RETURNS - COMPETITIVE EDGE Well Positioned in Digital Balance of Creativity and Analytics Strong at Integrating and Retaining Talent Balanced Global Exposure 17
  18. 18. GROWS PROFITS – TRACK RECORD EPS (EUR)3,53,02,52,01,51,0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Company, Tocqueville Research 18
  19. 19. GROWS PROFITS – SOME TOP-LINE GROWTH ORGANIC SALES GROWTH (%)10 8 6 4 2 0-2-4-6-8 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Consistently outperforms competitors on organic growth Top-line growth driven by digital (30% of revenue) and emerging markets (20% of revenue) Source: Tocqueville Research 19
  20. 20. GROWS PROFITS – MARGIN PROGRESS EBITA MARGIN Medium18% term17% target 18%16%15% Upward Trend14%13%12% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Structurally Margin Improvement driven by • Scaling of Digital • Streamlining / Off-Shoring Source: Tocqueville Research 20
  21. 21. SOLID MANAGEMENT Genuine Culture Commitment to Digital & Globalization CEO Levy – IT Background Key Person Risk Leveraging Global Clients with Acquisitions Post Investment Cycle more Shareholder Returns (net debt /ebitda – 0.5x) 21
  22. 22. SOFT CYCLICAL Topline • 60% of Sales from Defensive Sectors Costs • Staff Turnover 20% • Discretionary Costs (incentives, freelancers) 7% Revenues Margins Stable through the Cycle 15% - 17% EBIT 22
  23. 23. VALUATION No Asset Backing 7x 2012 EBIT 23
  24. 24. CONCLUSION – MY STOCK IDEA… High & Sustainable Returns Well Positioned to Grow Well Managed Mild Cyclical Exposure Modest Valuation …IS A GOOD IDEA 24
  25. 25. ENJOY YOUR TIME IN TRANI 25
  26. 26. DISCLAIMER• This document is strictly confidential and for the use of intended recipients only. It may not be reproduced,communicated or published in its entirety or in part, without the prior written authorisation of TocquevilleFinance S.A.• This commercial document should not be interpreted as a contractual or pre-contractual commitment on thepart of Tocqueville Finance S.A. It is produced purely for illustrative purposes and may be amended at any timewithout previous notice.• The information/analyses contained in this document, particularly figures, have come partly from externalsources considered to be trustworthy. However, Tocqueville Finance SA cannot guarantee that theinformation/analyses are complete, accurate and up-to-date.• Tocqueville Finance S.A. draws investors’ attention to the fact that past performances are presented on thebasis of figures relating to previous years and are not an indication of future performance.• Moreover, Tocqueville Finance S.A. in no way guarantees the current or future performances of funds cited inthis document• Investors are reminded that any financial investment includes risks (market risks, capital risk, foreignexchange risk) that may result in financial losses. Therefore, Tocqueville Finance S.A. recommends that prior toany investment, the recipient of this document carefully reads the prospectuses of the cited funds which areavailable free of charge at its head office located 8 rue Lamennais, Paris 75008 or on its websitewww.tocquevillefinance.fr and ensures that they have the experience and knowledge needed to make aninvestment decision, particularly with regard to the legal and tax implications. 26

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