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(Sharecast News) - Berenberg initiated coverage of advertising companies WPP, Publicis and Havas on Tuesday with 'buy' ratings.
The bank said their 20-50% de-rating offers significant upside potential and attractive valuations, with double-digit free cash flow yields.
"While the industry continues to face long-standing headwinds from in-housing and rising competition, and more recently AI, we believe agencies are adapting rather than fading away - becoming increasingly important strategic partners and helping clients navigate a more complex and fragmented marketing landscape," it said.
Berenberg set a price target of 405p for WPP, which offers 54% upside. "Previously the number-one advertising holding company, WPP has lost ground as peers pushed harder into data, technology and more centralised models, with WPP's declining sales, pressured profitability, continual restructuring and sharply lower market cap all reinforcing a negative narrative," it said.
"We expect the new management team to deliver on the simplification process started by the previous team."
Berenberg said a return to positive organic sales growth and margin expansion from 2028 should support increasing dividend per share, offering a 7-10% yield, safeguarded by a 12-22% free cash flow yield in 2027-28.
The bank set a 118 price target for Publicis, which it said has successfully reinvented itself as an integrated data- and AI-driven platform.
"While competitors (apart from Havas) are only now beginning the difficult transition to a client-centric model, Publicis has already completed its 'Power of One' restructuring initiative, a multi-year effort that has created a unified and highly effective operating model.
"This head-start provides a durable competitive advantage and is evident in Publicis's best-in-class organic growth and profitability."
As far as Havas is concerned, Berenberg said it was an early mover into fully integrated marketing solutions and has gradually built one of the most credible challenger positions versus its larger peers in the industry.
"We believe the group is well positioned to deliver a steady growth profile and gradual margin expansion, supporting high-single-digit earnings growth over 2026-28, with additional upside potential from disciplined bolt-on M&A," said the bank, which set a 27 price target.
"We view Havas's current circa 25% discount on two-year-forward P/E versus WPP and Dentsu as unjustified, given its stronger momentum and superior growth and profitability profile, despite both peers already trading at depressed valuations."
Berenberg expects Havas to deliver consistent organic net revenue growth of 2.5% per year over 2026-28, supported by solid commercial momentum.