Last close As at 05/08/2026
JPY3,549.00
▲ 86.00 (2.48%)
Market capitalisation
JPY9,205m
Research: TMT
Dentsu’s Q1 results indicate a slow start to the year, with organic net revenue down by 3.7%. However, prospects are improving, buoyed by new business wins and weighted to H2, which leave full year expectations (and our forecasts) unchanged. The One dentsu initiative, bringing together skill sets in consulting, technology, media and creative, is supporting improved pitch win rates, and giving greater coherence and consistency to the group product and service offering. We expect this to be a central element of the new management medium-term strategy, set to be unveiled during H2. The rating remains at a substantial discount to global peers, which we anticipate will narrow as evidence of renewed growth builds.
Dentsu Group |
FY24 prospects weighted to H2 |
Q124 update |
Media |
17 May 2024 |
Share price performance
Business description
Next events
Analysts
Dentsu Group is a research client of Edison Investment Research Limited |
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Dentsu’s Q1 results indicate a slow start to the year, with organic net revenue down by 3.7%. However, prospects are improving, buoyed by new business wins and weighted to H2, which leave full year expectations (and our forecasts) unchanged. The One dentsu initiative, bringing together skill sets in consulting, technology, media and creative, is supporting improved pitch win rates, and giving greater coherence and consistency to the group product and service offering. We expect this to be a central element of the new management medium-term strategy, set to be unveiled during H2. The rating remains at a substantial discount to global peers, which we anticipate will narrow as evidence of renewed growth builds.
Year end |
Net revenue (¥bn) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
1,119.5 |
187.6 |
488 |
155 |
8.9 |
3.6 |
12/23 |
1,129.5 |
151.3 |
340 |
140 |
12.8 |
3.2 |
12/24e |
1,189.3 |
159.8 |
382 |
140 |
11.4 |
3.2 |
12/25e |
1,227.0 |
178.7 |
406 |
141 |
10.7 |
3.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Japan again produces strongest group performance
Q1 net revenue was up 6.3% year-on-year, representing an organic decline of 3.7%, with a decline having been expected. Operating margin at 10.4% was depressed by the delay of an IT systems implementation project in Japan into the period and full year guidance is maintained at around 15% (we model 15.1%). Performance in Japan has continued to lead the rest of the group, with organic growth of 2.4% as advertising markets recovered, while other regions were mixed, but below the prior year. In the US, tech clients are continuing to rebuild their spending and there has been an uptick in strategy work in Customer Transformation & Technology (CT&T), which may be a precursor to improving conditions. Comparatives ease as the year progresses and earlier client losses cycle out, although we would still expect Q2 to see a small organic revenue decline. This inherently increases the H2 weighting, given the unchanged full year guidance.
Leaning into One dentsu
The new medium-term plan is set to be published in the second half and is likely to build on the One dentsu initiative, including identifying further ‘accelerator’ clients, where relationships can be embedded and expanded with the use of ‘integrated client leads’ to focus on delivery from across Dentsu’s offering. We would also expect to hear more on Merkury, the group’s data, identity and insights technology platform. The imperative remains to drive the group’s top line and return to growth.
Valuation: Waiting for growth
Dentsu’s share price is up 14% year-to-date, with global marketing service group peers’ prices increasing by 17%, albeit that these have divergent performances. Dentsu’s shares trade well below their long-term average of 1.4x EV/net revenue and at a 31% discount to peers on average FY23–25e EV/EBITDA.
Regional divergence in Q1
Japan again led the net revenue performance improvement in Q1, with organic growth of 2.4%. The other regions all underperformed the prior period and we run through the key factors and prospects below.
Exhibit 1: Quarterly results by geography
¥bn |
Q123 |
Q223 |
Q323 |
Q423 |
Q124 |
Net revenue |
|||||
Japan |
119.6 |
100.5 |
106.9 |
121.9 |
123.0 |
Americas |
73.2 |
77.3 |
82.7 |
88.8 |
80.5 |
EMEA |
52.1 |
53.6 |
57.9 |
73.9 |
57.2 |
APAC ex-Japan |
22.1 |
26.2 |
29.4 |
35.5 |
24.2 |
Eliminations |
2.4 |
1.1 |
2.0 |
2.2 |
1.5 |
Group |
269.4 |
258.7 |
278.9 |
322.3 |
286.4 |
Underlying operating profit |
|||||
Japan |
33.7 |
14.8 |
24.1 |
30.8 |
33.9 |
Americas |
13.3 |
15.2 |
20.5 |
24 |
13.1 |
EMEA |
3.7 |
2.0 |
2.3 |
16.2 |
(0.7) |
APAC ex-Japan |
(2.2) |
0.4 |
2.1 |
7.6 |
(3.1) |
Eliminations |
(10.7) |
(9.5) |
(11.6) |
(13.3) |
(13.3) |
Group |
37.8 |
22.9 |
37.4 |
65.3 |
29.9 |
Underlying operating margin |
|||||
Japan |
28.2% |
14.7% |
22.5% |
25.3% |
27.6% |
Americas |
18.2% |
19.7% |
24.8% |
27.0% |
16.3% |
EMEA |
7.1% |
3.7% |
4.0% |
21.9% |
-1.2% |
APAC ex-Japan |
-10.0% |
1.5% |
7.1% |
21.4% |
-12.8% |
Group |
14.0% |
8.9% |
13.4% |
20.3% |
10.4% |
Source: Dentsu Group accounts
Japan in the vanguard
Japan delivered 43% of group net revenue in Q124, with organic growth of 2.4%, to reach a record quarterly high. This is attributed to a good advertising market, with double-digit digital advertising growth and a strong TV market, with TV still representing a substantial element of the Japanese market (23.7% of overall ad spend in 2023, source: Dentsu). CT&T was more challenged, burdened by strong comparatives and some revenue re-categorisation. These comparatives improve into H2 and are further helped by a strong new business performance through the back end of FY23 and into Q124.
Americas: Improving mood music
Americas is the group’s next largest region (28% of group) and here organic growth was -6.6%, having been down 9.3% in Q423 and down 6.6% in Q323, reflecting earlier client losses. The more recent experience has been of a much-improved new business performance, which should help drive revenues across the remainder of the year and give a tailwind into FY25. The region still has a good pipeline of potential new business, which is 89% offensive (ie extending the client reach, rather than simply retaining business that is up for review). There were also encouraging noises on business from tech clients, where last year’s spending reductions had a major impact and repercussions across the sector. For CT&T, the going remains tough, with the relatively buoyant US economy reducing the urgency needed to drive larger transformation projects. The resurgence of strategic work could herald a better outlook.
EMEA still mixed
EMEA represented 20% of Q124 net revenues and organic growth across the region was down by 9.4%, although the individual country performances varied widely. Generally, southern Europe was notably better than the experience in Northern and DACH countries. As with the other regions, the comparatives ease considerably in the second half of the year.
APAC (ex-Japan)
The balance of 9% is contributed by Asia Pacific (APAC) (ex-Japan) and here organic net revenues were down by 7.1%, which was a better performance than earlier internal forecasts. Here again, comparatives ease as the group cycles past client losses in the early months of FY23. Win rates have picked up in China but generally conditions remain sluggish and management focus remains on streamlining and improving the efficiency of the group’s operations in the region.
Valuation
We look at the valuation of Dentsu in comparison to a core set of global peers and have added Stagwell to the peer set, which, although smaller, has considerable ambitions to build its global presence. Publicis has clearly been outperforming the pack, both operationally and in terms of share price performance, and we also note the continuing strong share price performance of Japan-based Hakuhodo. Dentsu’s share price is up by 14% year-to-date, with the Q124 results not providing any major surprises.
When we last carried out this exercise in February, Dentsu’s valuation was sitting at an average 27% discount in EV/EBITDA across the years CY23–25. This has slightly widened and now sits at 31%. We would expect this to narrow as the prospects for improving group performance by implementation of the new mid-term plan come into better focus.
Exhibit 2: Peer comparison
|
Price |
Market cap |
Ytd |
EV/revenue (x) |
EV/EBITDA (x) |
P/E (x) |
Dividend yield |
|||||
(local CCY) |
(US$m) |
(%) |
CY24 |
CY23 |
CY24 |
CY25 |
CY23 |
CY24 |
CY25 |
(%) |
||
Publicis |
€107 |
29,492 |
27 |
2.0 |
10.1 |
9.5 |
9.1 |
16.3 |
14.9 |
14.1 |
3.8 |
|
Omnicom |
US$96 |
18,760 |
10 |
1.5 |
8.8 |
8.4 |
8.0 |
12.5 |
12.0 |
11.2 |
3.2 |
|
Interpublic |
US$31 |
11,760 |
-6 |
1.4 |
7.5 |
7.5 |
7.2 |
11.5 |
11.0 |
10.3 |
3.8 |
|
WPP |
847p |
11,452 |
13 |
1.1 |
6.4 |
6.7 |
6.4 |
74.6 |
9.4 |
8.9 |
5.2 |
|
Hakuhodo |
¥1,502 |
3,756 |
39 |
0.5 |
9.9 |
8.3 |
8.0 |
27.8 |
21.4 |
20.1 |
2.1 |
|
Stagwell |
US$7 |
1,860 |
4 |
1.3 |
9.6 |
8.3 |
7.9 |
- |
8.6 |
7.7 |
0.0 |
|
Peer average |
|
17 |
1.3 |
8.7 |
8.1 |
7.8 |
28.5 |
12.9 |
12.0 |
3.0 |
||
Dentsu |
¥4,220 |
7,164 |
14 |
0.9 |
6.3 |
5.5 |
5.1 |
12.5 |
11.1 |
10.5 |
3.3 |
|
Premium/(discount) |
|
|
(3%) |
(28%) |
(27%) |
(32%) |
(34%) |
(56%) |
(14%) |
(13%) |
9% |
|
Source: LSEG, Edison Investment Research. Note: Prices at 13 May 2024.
Exhibit 2: Financial summary
¥'m |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1,243,883 |
1,289,301 |
1,356,700 |
1,393,000 |
Cost of Sales |
(124,383) |
(159,786) |
(167,400) |
(166,000) |
||
Net revenue |
1,119,500 |
1,129,515 |
1,189,300 |
1,227,000 |
||
EBITDA |
|
|
217,500 |
175,742 |
203,377 |
218,527 |
Operating profit (before amort. and excepts.) |
|
|
204,300 |
163,515 |
180,000 |
196,040 |
Amortisation of acquired intangibles |
(28,721) |
(30,600) |
(36,689) |
(36,689) |
||
Exceptionals |
(56,849) |
(88,065) |
(6,111) |
0 |
||
Share-based payments |
0 |
(500) |
0 |
0 |
||
Reported operating profit |
118,728 |
45,300 |
135,422 |
159,350 |
||
Net Interest |
(20,246) |
(15,901) |
(23,664) |
(20,820) |
||
Joint ventures & associates (post tax) |
(1,932) |
3,400 |
3,468 |
3,521 |
||
Exceptionals |
5,467 |
301 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
187,589 |
151,315 |
159,804 |
178,741 |
Profit Before Tax (reported) |
|
|
102,019 |
33,100 |
115,225 |
142,052 |
Reported tax |
(34,982) |
(38,500) |
(48,325) |
(49,718) |
||
Profit After Tax (norm) |
139,930 |
95,165 |
101,000 |
112,969 |
||
Profit After Tax (reported) |
67,036 |
(5,400) |
66,900 |
92,334 |
||
Minority interests |
(6,077) |
(5,200) |
(5,200) |
(5,200) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
130,835 |
89,800 |
101,034 |
107,769 |
||
Net income (reported) |
60,958 |
(10,700) |
61,700 |
87,134 |
||
Average Number of Shares Outstanding (m) |
268 |
264 |
265 |
266 |
||
EPS - normalised (¥) |
|
|
488 |
340 |
382 |
406 |
EPS - normalised fully diluted (¥) |
|
|
485 |
337 |
380 |
403 |
EPS - basic reported (¥) |
|
|
227 |
(20) |
273 |
347 |
Dividend (¥) |
155 |
140 |
140 |
141 |
||
Net revenue growth (%) |
16.9 |
0.9 |
5.3 |
3.2 |
||
EBITDA Margin to revenue less pass-through costs (%) |
19.4 |
15.6 |
17.1 |
17.8 |
||
Normalised operating margin to revenue less pass-through costs (%) |
18.2 |
14.5 |
15.1 |
16.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1,423,928 |
1,465,069 |
1,465,954 |
1,443,639 |
Intangible Assets |
962,100 |
1,069,800 |
1,053,562 |
1,014,124 |
||
Tangible Assets |
168,859 |
173,286 |
190,409 |
207,532 |
||
Investments & other |
292,969 |
221,983 |
221,983 |
221,983 |
||
Current Assets |
|
|
2,317,496 |
2,243,566 |
2,397,729 |
2,527,099 |
Stocks |
3,670 |
5,253 |
5,504 |
5,458 |
||
Debtors |
1,578,922 |
1,684,039 |
1,765,568 |
1,812,808 |
||
Cash & cash equivalents |
603,740 |
423,112 |
495,495 |
577,671 |
||
Other |
131,164 |
131,162 |
131,162 |
131,162 |
||
Current Liabilities |
|
|
(2,017,695) |
(2,026,316) |
(2,149,422) |
(2,164,761) |
Creditors |
(1,532,591) |
(1,578,952) |
(1,672,644) |
(1,717,397) |
||
Tax and social security |
(30,894) |
(30,894) |
(30,894) |
(30,894) |
||
Short term borrowings |
(95,790) |
(95,790) |
(95,790) |
(95,790) |
||
Other |
(358,420) |
(320,680) |
(350,094) |
(320,680) |
||
Long Term Liabilities |
|
|
(768,403) |
(671,658) |
(865,087) |
(859,470) |
Long term borrowings |
(436,639) |
(431,022) |
(425,405) |
(419,788) |
||
Other long term liabilities |
(331,764) |
(240,636) |
(439,682) |
(439,682) |
||
Net Assets |
|
|
955,326 |
1,010,661 |
849,174 |
946,507 |
Minority interests |
(75,060) |
(71,100) |
(76,300) |
(81,500) |
||
Shareholders' equity |
|
|
880,266 |
939,561 |
772,874 |
865,007 |
CASH FLOW |
||||||
Operating Cash Flow |
176,189 |
109,477 |
211,092 |
237,918 |
||
Working capital |
(3,519) |
(60,339) |
11,912 |
(2,440) |
||
Exceptional & other |
40,156 |
83,563 |
6,803 |
(1,095) |
||
Tax |
(115,764) |
(47,600) |
(48,325) |
(49,718) |
||
Net operating cash flow |
|
|
97,062 |
85,100 |
181,482 |
184,665 |
Capex |
(4,585) |
(27,600) |
(27,600) |
(27,600) |
||
Acquisitions/disposals |
(40,873) |
(148,900) |
(11,487) |
(10,762) |
||
Net interest |
(18,301) |
(15,901) |
(23,664) |
(20,820) |
||
Equity financing |
(40,006) |
0 |
(4,948) |
0 |
||
Net dividends |
(37,895) |
(42,000) |
(35,380) |
(37,287) |
||
Other |
(24,920) |
(11,574) |
0 |
0 |
||
Net Cash Flow |
(69,518) |
(160,874) |
78,402 |
88,197 |
||
Opening net debt/(cash) |
|
|
(144,352) |
(71,311) |
103,700 |
25,700 |
FX |
13,932 |
(11,000) |
0 |
0 |
||
Other non-cash movements |
(17,455) |
(3,137) |
(402) |
(403) |
||
Closing net debt/(cash) |
|
|
(71,311) |
103,700 |
25,700 |
(62,093) |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
Record’s Q424 trading update demonstrated continued growth in assets under management equivalent (AUME), which will support management fee growth into FY25. In FY24, AUME grew 17% to US$102.2bn, setting a new milestone in business scale. Net inflows for FY24 were US$6.8bn (FY23: US$9.1bn) or 8% of opening AUME. Performance fees of £5.8m matched the record FY23 figure, and we expect this to offset the negative product mix in FY24. We have reduced our FY24e EPS by 1%, which is affected by £2.4m in IT restructuring and impairment charges announced in March 2024. New CEO Dr Jan Witte is putting a sharper focus on the business, and we have upgraded our FY25e EPS by 5% in anticipation of efficiency improvements after a period of elevated cost inflation.