Last close As at 05/08/2026
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▲ 86.00 (2.48%)
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JPY9,205m
Research: TMT
Dentsu’s H124 figures show sequential quarterly improvements, with the group posting organic growth of 0.2% in Q2. Encouragingly, this is in part ascribed to improved pitch win rates in all four reporting regions, underpinning growth projections through H224 and into FY25, despite the persistent difficult macroeconomic backdrop. The One dentsu initiative is driving collaborative efforts across group capabilities and geographies and we expect this to be at the heart of the new medium-term strategy, to be unveiled in H2. In the meantime, the Business transformation (BX) offering is proving effective in Japan and is now to be rolled out more widely. The shares continue to be valued well below peers and we would expect this discount to narrow with improving operational performance.
Dentsu Group |
Positive momentum |
H124 results |
Media |
16 August 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 H124 figures show sequential quarterly improvements, with the group posting organic growth of 0.2% in Q2. Encouragingly, this is in part ascribed to improved pitch win rates in all four reporting regions, underpinning growth projections through H224 and into FY25, despite the persistent difficult macroeconomic backdrop. The One dentsu initiative is driving collaborative efforts across group capabilities and geographies and we expect this to be at the heart of the new medium-term strategy, to be unveiled in H2. In the meantime, the Business transformation (BX) offering is proving effective in Japan and is now to be rolled out more widely. The shares continue to be valued well below peers and we would expect this discount to narrow with improving operational performance.
Year end |
Net revenue (¥bn) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
1,119.5 |
187.6 |
488 |
155 |
8.7 |
3.7 |
12/23 |
1,129.5 |
151.3 |
340 |
140 |
12.5 |
3.3 |
12/24e |
1,189.3 |
159.8 |
382 |
140 |
11.1 |
3.3 |
12/25e |
1,227.0 |
178.7 |
411 |
141 |
10.3 |
3.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Japan leads the way back into growth
Dentsu achieved organic growth of 0.2% in Q224, its first positive quarterly gain since Q422, when comparatives were affected by the pandemic. The Japanese business (40% of H124 net revenue) has again proved the most robust, with organic growth of 1.8% in the quarter (+2.1% for H124), reflecting a healthy online media market. The Americas (the second most important region at 29%) posted a lesser rate of decline at -3.7% organic, after -6.6% in Q1. Improving win rates provide momentum into H2, along with the cycling out of prior year losses. The EMEA region is now lapping last year’s issues in the DACH region, with organic growth of 7.8%, supported by a notably strong performance in media. The smallest region, APAC Ex-Japan (9% of group), is improving slowly but still posting quarterly declines. Dentsu’s underlying Q2 operating margin was 11.5% and the target for the full year remains c 15%.
Good period for net new business
Dentsu has had a better period for net new business gains, particularly in media, where pitch conversion rates have been improving. The pipeline remains attractive and is gauged at 85% offensive opportunities (ie winning new clients rather than retaining existing clients where the business has been opened for pitching). Larger transformation project opportunities remain sluggish, but good levels of precursor strategy work bode well for future periods when corporate confidence strengthens.
Valuation: Waiting for growth
Dentsu’s share price is up 14% year-to-date. Global marketing service group peers’ performances have diverged, ranging from +10% (Publicis) to -9% (WPP). Dentsu’s shares trade well below their long-term average of 1.4x EV/net revenue and at a 26% discount to peers on average FY23–25e EV/EBITDA.
On track to meet full year guidance
Management’s (unchanged) FY24 guidance is for net revenue of ¥1,189.3bn, which implies H224 net revenue of ¥615.5bn, which would be 2.4% ahead of the prior year (on an actual basis, rather than organic). We regard this as achievable, particularly considering easing comparatives in the second half. At the underlying operating profit level, meeting full year guidance of ¥180.0bn implies achieving ¥128.1bn in the second half, which would represent an underlying operating margin of 20.8%. Margins are inherently seasonally higher in the second half and our view is that this level should be possible, provided that there are no further external shocks, geopolitical or otherwise.
Still variability by region
The table below shows the quarterly progression by region and it is particularly worth noting the underlying operating margin movements.
Exhibit 1: Quarterly financial progression by geography
¥bn |
Q123 |
Q223 |
Q323 |
Q423 |
Q124 |
Q224 |
|
Net revenue |
|||||||
Japan |
119.6 |
100.5 |
106.9 |
121.9 |
123.0 |
101.8 |
|
Americas |
73.2 |
77.3 |
82.7 |
88.8 |
80.5 |
86.6 |
|
EMEA |
52.1 |
53.6 |
57.9 |
73.9 |
57.2 |
68.1 |
|
APAC ex-Japan |
22.1 |
26.2 |
29.4 |
35.5 |
24.2 |
29.4 |
|
Eliminations |
2.4 |
1.1 |
2.0 |
2.2 |
1.5 |
1.5 |
|
Group |
269.4 |
258.7 |
278.9 |
322.3 |
286.4 |
287.4 |
|
Underlying operating profit |
|||||||
Japan |
33.7 |
14.8 |
24.1 |
30.8 |
33.9 |
15.2 |
|
Americas |
13.3 |
15.2 |
20.5 |
24.0 |
13.1 |
20.7 |
|
EMEA |
3.7 |
2.0 |
2.3 |
16.2 |
(0.7) |
9.7 |
|
APAC ex-Japan |
(2.2) |
0.4 |
2.1 |
7.6 |
(3.1) |
0.6 |
|
Eliminations |
(10.7) |
(9.5) |
(11.6) |
(13.3) |
(13.3) |
(13.0) |
|
Group |
37.8 |
22.9 |
37.4 |
65.3 |
29.9 |
33.1 |
|
Underlying operating margin |
|||||||
Japan |
28.2% |
14.7% |
22.5% |
25.3% |
27.6% |
17.6% |
|
Americas |
18.2% |
19.7% |
24.8% |
27.0% |
16.3% |
23.9% |
|
EMEA |
7.1% |
3.7% |
4.0% |
21.9% |
-1.2% |
14.2% |
|
APAC ex-Japan |
-10.0% |
1.5% |
7.1% |
21.4% |
-12.8% |
2.0% |
|
Group |
14.0% |
8.9% |
13.4% |
20.3% |
10.4% |
11.5% |
|
Source: Dentsu
In Japan, the two largest components of net revenue, internet advertising and television, both had a good quarter, ahead by 14.7% and 2.5%, respectively, outperforming the underlying market. By industry, the largest segment (household and personal products) was a notably strong performer, with net revenue up 28.5%. In terms of the type of business being carried out, business transformation grew in double-digits, with digital transformation in high single-digits. The customer experience was against tougher comparatives, but good net new business wins (with better pitch conversion rates) here hold out for improved prospects through H2 and into FY25.
The Americas posted a better result for Q2 than for Q1 and with momentum building in new client wins, further progress in the second half is now effectively underwritten, with earlier client losses now cycling through. Both media and creative elements are seeing improving pipeline conversion, with media having a particularly strong further pipeline into H2. Customer Transformation and Technology (CT&T) remains affected by long sales cycles and the unhelpful macroeconomic backdrop. The upsides are that strategy work, often the precursor of larger projects, remains robust and clients that implemented major projects post-pandemic are now starting to appraise subsequent phases, albeit that implementation could still be a couple of years out. The investment made in data and technology expertise, analysis and implementation, encapsulated in the launch of Merkury, is already proving its worth in conversations with existing and potential clients.
In EMEA, the first half figures were flattered by the comparatives that were for the period of the one-off DACH cluster issue (see our August 2023 outlook note). Stripping out this effect, organic net revenue would have been down 7.5% rather than the posted -0.9%. Media had a particularly good quarter, with a better-than-expected win rate of local clients. Creative benefited from new client wins in the Netherlands and increased scope from existing clients. The same issues of long sales cycles were seen in CT&T, but management notes a strengthening pipeline.
In Asia-Pacific (ex-Japan), organic net revenue improved slightly over the prior quarter at -6.2% from -7.1% in Q124, with prior year client losses continuing to drag on performance. Media performed well in Thailand and Indonesia, benefiting from strong relationships with local clients and large client spending in creative gave a steady result in this practice. As elsewhere, CT&T remains challenging, particularly in Australia due to client losses.
The presentation also included a sizzle reel from Dentsu Lab (Exhibit 2), which demonstrates some of the group’s capability in creative R&D. This is currently on offer to clients in five countries and is being expanded globally. This is not likely to be a significant profit centre as a free-standing entity, but forms a potentially valuable part of the broader integrated growth services client offering and is also highly regarded by management as an engine for delivering social good, both for Dentsu and for its clients.
|
Exhibit 2: Dentsu Lab showcase |
|
|
Source: Dentsu |
Valuation
We look at the valuation of Dentsu in comparison to a core set of global peers, including Stagwell, 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 financial newsflow not providing any major surprises in the period but with improved momentum.
When we last carried out this exercise in May, Dentsu’s valuation was sitting at an average 31% discount in EV/EBITDA across the years CY23–25. With the positive response to the results, this has narrowed to 26%, and we would expect it to continue to decrease as the prospects for improving group performance by implementation of the new mid-term plan come into better focus.
Exhibit 3: Peer valuations
|
Price |
Market cap |
Ytd |
EV/revenue (x) |
EV/EBITDA (x) |
P/E (x) |
Dividend yield |
||||||
Company |
(local ccy) |
(US$m) |
(%) |
CY24e |
CY23 |
CY24e |
CY25e |
CY23 |
CY24e |
CY25e |
(%) |
||
Publicis |
€92 |
25,707 |
10 |
1.8 |
9.0 |
8.5 |
8.1 |
16.3 |
12.6 |
11.9 |
3.8 |
||
Omnicom |
US$94 |
18,450 |
9 |
1.6 |
9.4 |
9.0 |
8.5 |
12.5 |
11.9 |
11.0 |
3.2 |
||
Interpublic |
US$31 |
11,470 |
-6 |
1.4 |
7.4 |
7.4 |
7.3 |
11.5 |
10.7 |
10.4 |
3.8 |
||
WPP |
693p |
9,570 |
-9 |
0.9 |
6.0 |
6.3 |
6.3 |
74.6 |
7.8 |
7.6 |
5.2 |
||
Hakuhodo |
¥1,165 |
3,081 |
8 |
0.5 |
7.1 |
6.9 |
6.6 |
20.4 |
23.1 |
19.6 |
2.3 |
||
Stagwell |
US$6 |
1,700 |
-3 |
1.2 |
9.6 |
8.3 |
7.9 |
- |
8.5 |
7.6 |
0.0 |
||
Peer average |
|
2 |
1.2 |
8.1 |
7.7 |
7.4 |
27.1 |
12.4 |
11.3 |
3.1 |
|||
Dentsu |
¥3,854 |
7,916 |
15 |
1.0 |
6.5 |
5.6 |
5.3 |
12.6 |
11.2 |
10.4 |
33 |
||
Premium/(discount) |
|
5% |
-22% |
-19% |
-27% |
-29% |
-53% |
-10% |
-8% |
7% |
|||
Source: LSEG Data & Analytics, Edison Investment Research. Note: Prices as at 15 August 2024.
Exhibit 4: 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 |
163,290 |
180,000 |
196,040 |
Amortisation of acquired intangibles |
(28,721) |
(30,600) |
(36,689) |
(36,689) |
||
Exceptionals |
(56,849) |
(87,840) |
(6,111) |
0 |
||
Share-based payments |
0 |
(500) |
0 |
0 |
||
Reported operating profit |
118,728 |
45,300 |
107,122 |
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 |
526 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
187,589 |
151,315 |
159,804 |
178,741 |
Profit Before Tax (reported) |
|
|
102,019 |
33,100 |
86,925 |
142,052 |
Reported tax |
(34,982) |
(38,500) |
(50,225) |
(49,718) |
||
Profit After Tax (norm) |
139,930 |
95,165 |
101,000 |
112,969 |
||
Profit After Tax (reported) |
67,036 |
(5,400) |
36,700 |
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) |
31,500 |
87,134 |
||
Average Number of Shares Outstanding (m) |
268 |
264 |
265 |
262 |
||
EPS - normalised (¥) |
|
|
488 |
340 |
382 |
411 |
EPS - normalised fully diluted (¥) |
|
|
485 |
337 |
380 |
409 |
EPS - basic reported (¥) |
|
|
227 |
(20) |
139 |
352 |
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 op. 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 |
1,459,754 |
1,443,639 |
Intangible Assets |
962,100 |
1,069,800 |
1,047,362 |
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 |
2,369,236 |
2,499,113 |
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 |
467,002 |
549,685 |
||
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 |
814,481 |
918,520 |
Minority interests |
(75,060) |
(71,100) |
(76,300) |
(81,500) |
||
Shareholders' equity |
|
|
880,266 |
939,561 |
738,181 |
837,020 |
CASH FLOW |
||||||
Operating Cash Flow |
176,189 |
109,477 |
182,792 |
237,918 |
||
Working capital |
(3,519) |
(60,339) |
11,912 |
(2,440) |
||
Exceptional & other |
40,156 |
83,563 |
39,803 |
(1,095) |
||
Tax |
(115,764) |
(47,600) |
(50,225) |
(49,718) |
||
Net operating cash flow |
|
|
97,062 |
85,100 |
184,282 |
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 |
(20,000) |
0 |
||
Net dividends |
(37,895) |
(42,000) |
(35,121) |
(36,785) |
||
Other |
(24,920) |
(11,574) |
11,993 |
(349) |
||
Net Cash Flow |
(69,518) |
(160,874) |
78,402 |
88,349 |
||
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 |
(62,246) |
Source: Company accounts, Edison Investment Research
|
|
Research: Healthcare
Basilea’s H124 results reflect strong momentum across its pipeline and we expect the pace to accelerate in H224. The key highlight of the period was the FDA approval of Zevtera. We now expect all eyes to be on the announcement of a US commercial partner and the Phase III launch for fosmanogepix (expected imminently). Lead product Cresemba continued its outperformance versus our estimates (16.6% growth in royalties), contributing >90% of H124 revenues of CHF76.3m and driving the company’s FY24 guidance upgrade (group revenues of CHF196m versus CHF183m previously) with H2-weighed milestone payments. The balance sheet continues to strengthen, with strong operating cash flows (CHF17.9m in H124) and a healthy cash balance (gross cash of CHF63m). We adjust our estimates for the stronger than anticipated performance of Cresemba, with our valuation rising to CHF89.7 per share from CHF84.0 per share previously.