Dentsu Group

CN: 4324

Market CapJPY1,170,944m

Last Close JPY4060

Dentsu Group is a holding company with two operational networks: Dentsu Japan Network (DJN) and Dentsu International (DI). Operating in over 145 countries, Dentsu Group provides a wide range of client-centric integrated communications, media and digital services.

Investment summary

Dentsu had a strong Q222, reporting organic revenue growth of 8.2% (7.9% including Russia). Customer Transformation & Technology (CT&T) is the main engine of growth and represents 32.3% of group net revenue, up from 31.5% in Q122. We would expect this segment to be more resilient should a deteriorating H222 macro environment stall advertising momentum. Management is now guiding to the top end of the previously cited 4–5% revenue growth range and we have edged our forecasts ahead, with earnings also set to benefit from a lower tax charge than expected. The shares have outperformed the peer set in the year-to-date, narrowing the EV/EBITDA discount at which they trade.

Y/E Dec	Revenue (¥m)	EBITDA (¥m)	PBT (¥m)	EPS (fd) (¥)	P/E (x)	P/CF (x)
2020A	939243.0	90063.0	123470.0	249.0	16.3	N/A
2021A	1085592.0	195006.0	146021.0	389.0	10.4	0.0
2022E	1250000.0	210726.0	172809.0	440.0	9.2	0.1
2023E	1300000.0	217909.0	181411.0	470.0	8.6	0.1

Industry outlook

CT&T benefits from structural tailwinds as companies look to invest to optimise to meet the demands of their own customers, a process which may even accelerate as economic pressures become more pronounced. Dentsu’s latest global ad spend forecast is +8.7% for FY22, with gains of 5.4% for FY23 and 5.1% for FY24 pencilled in. Digital spend is forecast at 55.5% of FY22 global ad spend, with linear TV the next largest media, making up 26.1%. The Japanese ad market still lags the digital transition curve, with TV prominent. Digital is faster growing but is still well below the global share.

Last updated on 26/09/2022