Last close As at 05/08/2026
JPY3,549.00
▲ 86.00 (2.48%)
Market capitalisation
JPY9,205m
Research: TMT
Dentsu posted Q324 organic net revenue growth of 0.3%, making a decline of 1.1% over the nine-month period. This is slightly below expectations at the half-year and, as the market for larger, transformational projects is still stagnant, management has trimmed full year organic revenue growth guidance to 0% (was 1%) and that for adjusted operating profit by 7%. There are positive elements to these figures, in particular continuing progress in Japan and good new business boosted by the ‘one dentsu’ initiative. The unveiling of the mid-term management plan has been delayed to February 2025, with the FY24 figures. Post the reaction to the Q3 figures, the shares now trade at a 10% discount to peers on EV/EBITDA.
Dentsu Group |
Still fighting market headwinds |
Q3 results |
Media |
18 November 2024 |
Share price performance
Business description
Next events
Analyst
Dentsu Group is a research client of Edison Investment Research Limited |
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Dentsu posted Q324 organic net revenue growth of 0.3%, making a decline of 1.1% over the nine-month period. This is slightly below expectations at the half-year and, as the market for larger, transformational projects is still stagnant, management has trimmed full year organic revenue growth guidance to 0% (was 1%) and that for adjusted operating profit by 7%. There are positive elements to these figures, in particular continuing progress in Japan and good new business boosted by the ‘one dentsu’ initiative. The unveiling of the mid-term management plan has been delayed to February 2025, with the FY24 figures. Post the reaction to the Q3 figures, the shares now trade at a 10% discount to peers on EV/EBITDA.
Year end |
Net revenue (¥bn) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
1,119.5 |
187.6 |
488 |
155 |
8.4 |
3.8 |
12/23 |
1,144.8 |
151.6 |
340 |
140 |
12.1 |
3.4 |
12/24e |
1,195.7 |
151.4 |
350 |
140 |
11.8 |
3.4 |
12/25e |
1,216.5 |
165.1 |
384 |
140 |
10.7 |
3.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Margins set to rebuild from FY25
The revised guidance steers to an adjusted group operating margin of 14%, down from 15% previously. This partly reflects inherent operating leverage and disadvantageous terms of trade in international markets, but also factors in increased headcount in Japan in the digital area as the business in Dentsu’s home market continues to do well. Our modelling suggests a return to an adjusted group operating margin of just over 15% for FY25 (was 16%), subject to the levels of investment to be clarified in the new mid-term plan. Some of the principles of this plan have now been outlined, with a continuing focus on internal investment in AI, data and technology, talent and operations.
Japan doing well, US more difficult
Japan’s performance was in line across Business transformation, creative and media. The disappointment was primarily within Customer Experience Management (CXM), where international clients remain reluctant to approve larger projects when they themselves face uncertain end markets. Recovery is happening, just at a slow pace. Other new business reported is encouraging, particularly wins of eBay for Media and of Adobe in Creative, harnessing wider group capabilities.
Valuation: Discount to peers post Q3 reaction
Dentsu’s shares are down c 15% on the Q3 figures, having previously outperformed the global marketing service peers over the year to date. Despite this decline, the shares are up 13% from the start of the year, ahead of the average of +9% for the peers. This masks a wide range from +23% (Publicis) to -12% (Interpublic). Dentsu’s shares now trade roughly at a 10% discount to peers on EV/EBITDA and a 14% discount on P/E across FY23–25e.
Q3 results: Good in Japan, mixed elsewhere
We have reset our FY24 estimates to match the revised management guidance, which effectively downgrades the underlying operating profit by 7%. The revised revenue guidance is actually higher, at ¥1,400m from ¥1,357m, but this is the impact of forex changes rather than a fundamental shift. This gain has mostly dissipated by the net revenue line, which is a more representative indicator of the activity of the business. Here the revision is up 0.5%.
Exhibit 1: Summary revisions to estimates
Underlying operating profit (¥m) |
Underlying operating margin (%) |
Underlying basic EPS (¥) |
|||||||
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
|
2024e |
180.0 |
167.7 |
-7 |
15.1 |
14.0 |
-110bp |
382.0 |
350.1 |
-8 |
2025e |
196.0 |
183.6 |
-6 |
16.0 |
15.1 |
-110bp |
411.3 |
383.9 |
-7 |
Source: Edison Investment Research
The reduction at the underlying EPS level is slightly greater at -8%, but the estimated full year dividend remains unchanged at ¥139.5.
Our FY25 revisions reflect the lower prior year base.
Regional conditions still divergent
The table below shows the quarterly progression by region and it is particularly worth noting the underlying operating margin movements.
Exhibit 2 Quarterly financial progression by geography
¥bn |
Q323 |
Q423 |
Q124 |
Q224 |
Q324 |
Net revenue |
|||||
Japan |
106.9 |
121.9 |
123.0 |
101.8 |
109.9 |
Americas |
82.7 |
88.8 |
80.5 |
86.6 |
81.3 |
EMEA |
57.9 |
73.9 |
57.2 |
68.1 |
64.9 |
APAC ex-Japan |
29.4 |
35.5 |
24.2 |
29.4 |
26.5 |
Eliminations |
2.0 |
2.2 |
1.5 |
1.5 |
2.0 |
Group |
278.9 |
322.3 |
286.4 |
287.4 |
284.5 |
U/l operating profit |
|||||
Japan |
24.1 |
30.8 |
33.9 |
15.2 |
22.8 |
Americas |
20.5 |
24 |
13.1 |
20.7 |
17.2 |
EMEA |
2.3 |
16.2 |
(0.7) |
9.7 |
7.5 |
APAC ex-Japan |
2.1 |
7.6 |
(3.1) |
0.6 |
(1.8) |
Eliminations |
(11.6) |
(13.3) |
(13.3) |
(13.0) |
(11.5) |
Group |
37.4 |
65.3 |
29.9 |
33.1 |
34.2 |
Underlying operating margin |
|||||
Japan |
22.5% |
25.3% |
27.6% |
14.9% |
20.8% |
Americas |
24.8% |
27.0% |
16.3% |
23.9% |
21.2% |
EMEA |
4.0% |
21.9% |
-1.2% |
14.2% |
11.6% |
APAC ex-Japan |
7.1% |
21.4% |
-12.8% |
2.0% |
-6.8% |
Group |
13.4% |
20.3% |
10.4% |
11.5% |
12.0% |
Source: Dentsu
For Japan, the net revenue for the first nine months of 2024 (9M24) is the highest achieved to date for that period, with particularly strong demand in the internet advertising sphere, up 17% in the quarter and 15% in 9M24. Television remains the largest business category, and here net sales were up 6% in the quarter. Business transformation, termed BX, was up double digits, with continuing strong demand. Pitch win rates have been notably strong, and management is confident that the region will meet internal expectations for the full year.
Alongside Japan, the Americas remains a priority for the group’s development, reflecting its importance in the global market. Here net revenue was 3% softer than Q323 on a like-for-like basis, down 4.5% in 9M24 and showing a sequential improvement. The key issue is that of a difficult backdrop for the CXM practice, with clients reluctant to commit to substantive projects. Although there is some recovery here, it is slow, and management expects a continued organic decline in Q424. We are encouraged by the wins of eBay (Media) and Adobe (Creative). The former win is testament to the strength of the group’s international offering and its willingness to harness innovation, including the benefits of the data, tech and AI-driven solutions within Dentsu’s Merkury product suites. The Adobe win stems from a deep understanding of the client and its tech stack, as well as the ability to tap into resources across the ‘one dentsu’ group, including those that came into the group with last year’s Tag acquisition.
In Europe, the Middle East and Africa (EMEA), the organic growth rate turned positive, although this is a mechanistic effect from the prior year issue with the Dach cluster (see our August 2023 outlook note), and stripping this out, there would have been an organic decline of 3.4%. This is an improvement on the first half organic decline of 7.5%. Difficult CXM markets persist here as well, although again there is some modest improvement and this is the root cause of the reduced regional projection. Creative reportedly returned to growth in Q3, with momentum into Q4 and a good phase of new business wins in Media should also benefit both Q4 and FY25.
Asia-Pacific (APAC) (ex Japan) remains challenged, with continuing problems in China (far from unique to Dentsu) and weak CXM demand from Australia. Organic growth in the region was down 11.6% in the quarter and down 8.4% over 9M24. Media services has stayed a soft market, but with better demand from larger players, and Creative has simply stayed difficult.
Early indications on the mid-term plan
While the mid-term plan will not be revealed in any detail until the full year results in February, there have been some hints about the key themes. These include:
■
Concentrating resources on the key markets of Japan and the US. This is not to be taken as an indication of retrenching geographically, but more that investment around developing data and technology-driven offerings will be concentrated here.
■
Strengthening the structure for strategic clients, which we take to mean an extension and deepening of the resource dedicated to the Accelerator clients, discussed in earlier reports.
■
Further investment in data, technology, AI and talent that will drive enhanced collaboration and integration, including collaboration on Japanese clients.
■
Driving greater efficiency within the organisation through adjusting the cost structure in the middle and back office and eliminating internal functional duplication.
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 performing very strongly, both operationally and in terms of share price performance, with Omnicom, WPP and Stagwell all delivering share price increases in double figures over the year to date.
When we last carried out this exercise in August, Dentsu’s valuation was sitting at an average 26% discount on EV/EBITDA across the years CY23–25, having narrowed from 31% in May. The shares had been performing strongly prior to this Q3 update. However, post the market reaction to the results, the discount is now approximately 10%.
Exhibit 3: Peer valuations
|
Share price |
Market cap |
Ytd |
EV/revenue (x) |
EV/EBITDA (x) |
P/E (x) |
Dividend yield |
||||
Company |
(local CCY) |
(US$m) |
(%) |
CY24 |
CY23 |
CY24 |
CY25 |
CY23 |
CY24 |
CY25 |
(%) |
Publicis |
€103 |
27,885 |
23 |
2.0 |
10.1 |
9.4 |
8.9 |
16.3 |
14.2 |
13.4 |
3.8 |
Omnicom |
US$101 |
20,490 |
16 |
1.7 |
10.2 |
9.7 |
9.1 |
12.5 |
13.2 |
12.2 |
3.2 |
WPP |
838p |
11,469 |
11 |
1.0 |
6.7 |
7.2 |
7.3 |
74.6 |
9.6 |
9.4 |
5.2 |
Interpublic |
US$29 |
10,880 |
-12 |
1.3 |
7.1 |
7.2 |
7.4 |
11.5 |
10.3 |
10.6 |
3.8 |
Hakuhodo |
¥1,140 |
2,859 |
6 |
0.5 |
7.3 |
6.9 |
6.7 |
20.4 |
23.5 |
20.3 |
2.3 |
Stagwell |
US$7 |
1,960 |
11 |
1.5 |
10.4 |
9.1 |
8.5 |
- |
9.8 |
9.7 |
0.0 |
Peer average |
|
9 |
1.3 |
8.6 |
8.2 |
8.0 |
27.1 |
13.4 |
12.6 |
3.1 |
|
Dentsu |
¥4,097 |
7,126 |
13 |
1.2 |
8.0 |
7.5 |
6.9 |
12.1 |
11.8 |
10.7 |
3.4 |
Premium/(discount) |
|
-10% |
-7% |
-9% |
-13% |
-55% |
-12% |
-15% |
11% |
||
Source: LSEG Data & Analytics, Edison Investment Research. Note: Prices as at 15 November 2024.
Exhibit 4: Financial summary
¥'m |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1,246,401 |
1,304,552 |
1,400,100 |
1,440,000 |
Cost of Sales |
(126,882) |
(159,733) |
(204,400) |
(223,476) |
||
Net revenue |
1,119,519 |
1,144,819 |
1,195,700 |
1,216,524 |
||
EBITDA |
|
|
217,519 |
178,127 |
190,189 |
206,086 |
Operating profit (before amort. and excepts.) |
|
|
204,319 |
163,515 |
167,700 |
183,600 |
Amortisation of acquired intangibles |
(28,721) |
(30,691) |
(36,689) |
(36,689) |
||
Exceptionals |
(56,849) |
(87,840) |
(10,132) |
(2) |
||
Share-based payments |
0 |
(500) |
0 |
0 |
||
Reported operating profit |
118,747 |
45,312 |
92,000 |
146,913 |
||
Net Interest |
(20,246) |
(15,810) |
(19,806) |
(21,983) |
||
Joint ventures & associates (post tax) |
(1,932) |
3,400 |
3,468 |
3,521 |
||
Exceptionals |
5,467 |
526 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
187,608 |
151,631 |
151,362 |
165,139 |
Profit Before Tax (reported) |
|
|
102,038 |
33,103 |
75,662 |
128,451 |
Reported tax |
(34,982) |
(38,572) |
(52,162) |
(46,242) |
||
Profit After Tax (norm) |
139,949 |
95,309 |
96,845 |
105,689 |
||
Profit After Tax (reported) |
67,055 |
(5,469) |
23,500 |
82,209 |
||
Minority interests |
(6,077) |
(5,245) |
(5,245) |
(5,245) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
130,854 |
89,899 |
91,600 |
100,444 |
||
Net income (reported) |
60,977 |
(10,714) |
18,255 |
76,964 |
||
Average Number of Shares Outstanding (m) |
268 |
264 |
262 |
262 |
||
EPS - normalised (¥) |
|
|
488 |
340 |
350 |
384 |
EPS - normalised fully diluted (¥) |
|
|
485 |
338 |
348 |
382 |
EPS - basic reported (¥) |
|
|
228 |
(41) |
90 |
314 |
Dividend (¥) |
155 |
140 |
140 |
140 |
||
Net revenue growth (%) |
16.9 |
2.3 |
4.4 |
1.7 |
||
EBITDA Margin to revenue less pass-through costs (%) |
19.4 |
15.6 |
15.9 |
16.9 |
||
Normalised op. margin to revenue less pass-through costs (%) |
18.3 |
14.3 |
14.0 |
15.1 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1,281,646 |
1,355,588 |
1,333,150 |
1,299,912 |
Intangible Assets |
962,100 |
1,069,854 |
1,047,416 |
1,014,178 |
||
Tangible Assets |
26,577 |
29,430 |
29,430 |
29,430 |
||
Investments & other |
292,969 |
256,304 |
256,304 |
256,304 |
||
Current Assets |
|
|
2,270,531 |
2,087,362 |
2,299,108 |
2,381,606 |
Stocks |
3,670 |
6,396 |
8,185 |
8,948 |
||
Debtors |
1,531,957 |
1,524,289 |
1,822,048 |
1,893,699 |
||
Cash & cash equivalents |
603,740 |
390,678 |
302,878 |
312,962 |
||
Other |
131,164 |
165,999 |
165,997 |
165,997 |
||
Current Liabilities |
|
|
(2,017,695) |
(1,939,910) |
(2,101,336) |
(2,081,661) |
Creditors |
(1,532,591) |
(1,527,612) |
(1,726,151) |
(1,735,890) |
||
Tax and social security |
(30,894) |
(28,088) |
(28,088) |
(28,088) |
||
Short term borrowings |
(95,790) |
(39,213) |
(39,213) |
(39,213) |
||
Other |
(358,420) |
(344,997) |
(307,884) |
(278,470) |
||
Long Term Liabilities |
|
|
(768,403) |
(781,735) |
(574,258) |
(568,641) |
Long term borrowings |
(245,961) |
(455,232) |
(449,615) |
(443,998) |
||
Other long term liabilities |
(522,442) |
(326,503) |
(124,643) |
(124,643) |
||
Net Assets |
|
|
766,079 |
721,305 |
956,664 |
1,031,215 |
Minority interests |
(75,060) |
(71,104) |
(76,349) |
(81,594) |
||
Shareholders' equity |
|
|
691,019 |
650,201 |
880,315 |
949,621 |
CASH FLOW |
||||||
Operating Cash Flow |
176,208 |
111,822 |
171,528 |
224,318 |
||
Working capital |
(3,519) |
(60,338) |
(101,009) |
(62,675) |
||
Exceptional & other |
40,156 |
85,937 |
37,099 |
69 |
||
Tax |
(115,764) |
(47,301) |
(52,162) |
(46,242) |
||
Net operating cash flow |
|
|
97,081 |
90,120 |
55,456 |
115,469 |
Capex |
(4,585) |
(27,623) |
(28,892) |
(28,892) |
||
Acquisitions/disposals |
(40,873) |
(136,544) |
(11,487) |
(10,762) |
||
Net interest |
(18,301) |
(20,583) |
(19,806) |
(21,983) |
||
Equity financing |
(40,006) |
(4) |
(20,000) |
0 |
||
Net dividends |
(37,895) |
(42,009) |
(39,975) |
(37,733) |
||
Other |
(24,920) |
(27,786) |
(16,500) |
(349) |
||
Net Cash Flow |
(69,499) |
(164,429) |
(81,204) |
15,750 |
||
Opening net debt/(cash) |
|
|
(144,352) |
(262,008) |
106,136 |
187,742 |
FX |
13,932 |
11,117 |
0 |
0 |
||
Other non-cash movements |
173,223 |
(214,832) |
(402) |
(49) |
||
Closing net debt/(cash) |
|
|
(262,008) |
106,136 |
187,742 |
172,041 |
Source: Dentsu accounts, Edison Investment Research
|
|
Research: Financials
After two quarters of >20% y-o-y revenue growth, JDC Group (JDC) has benefited from strong tailwinds in Q324 as well. Revenue growth of 36% in the quarter was partly driven by the acquisition of Top Ten, but mostly by strong Insurance, investment and banks activities. Q424 is also expected to be strong and JDC indicated that the high end of FY24 revenue guidance of €205–220m is well within reach. FY24 EBITDA guidance is in the range of €14.5–16.0m (FY23: €11.7m). After raising our estimates with the H124 results, we make no further changes. Our discounted cash flow provides a valuation of €34.0/share.