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OMC – Great Company Bought by Gurus

November 30, 2011 | About:
Mara Kohn

Mara Kohn

4 followers
Omnicom (OMC) is a holding company whose portfolio is made up of large and small advertising and marketing firms. As regards the largest agencies, DDB and BBDO, they provide a wide range of services and have achieved a global reach across the industry. The top four global holding companies in the market represent between 60 and 70% of it.

Omnicom owns several individual agencies focused on ad creation, brand strategy, media planning and public relations. This set of services allows Omnicom to provide multiplatform and integrated marketing campaigns. Take notice that this is something smaller independent agencies are unable to offer because their size only allows them to focus on specific marketing disciplines and their geographic focus is very narrow.

Additionally, these agencies highly integrate with the clients' operations making it very difficult for them to search for alternatives.

Omnicom also has an interesting strategy to keep clients. It has worked in such a way to enable its three global networks to look like more than small holding companies. That is really compelling because it avoids conflict of interest as clients can be served in two different networks within the same industry and it allows the company to retain a client who is unhappy with one of the firms as it has another family agency who can cover the client´s needs. The client would not necessarily turn to a competitor.

Although rivals have tried to copy this strategy, Omnicom has been more successful. Each of its portfolio picks is strong on its own. BBDO and DDB are widely recognized in the world.

Omnicom is a solid company. There is no doubt about it. I really like it. Besides, I have seen that it is very well managed. CEO John Wren has served the company well. Each of the company´s acquisition has been perfectly chosen. The selective purchases have made the company avoid certain acquisition problems that some competitors have unfortunately faced. This is an issue that many investors do not usually take into account but are paramount to see whether a company is worth investing in.

Thanks to Wren's performance, Omnicom has consistent and solid revenue and has gained profitability. Sales growth has gone hand in hand with the advertising growth, and this has allowed the company to avoid severe fluctuations with the economic problems the world has undergone. Indeed, the company's operating margins are steadier than those of other firms.

The company has reported revenue growth of 12.9% in the third quarter and its operating margin of 11% has been higher than the prior year.

The company is expected to grow nearly 10% next year and during the next five years, sales should increase 4%.

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The fair value estimate of $50 remains unchanged, making the shares loss 18% of their value.

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I would really long for investing in Omnicon. Not only because of its performance and the figures that show a steady situation and growth perspectives, but also because it is very well managed and has been looking toward positioning itself in emerging markets.

Indeed, the company's will to expand is instrumental for an investor's long-term planning. Omnicom has demonstrated that it is seeking to increase revenue in markets such as China, India and South America. It is focusing on new acquisitions in those areas and still reinforcing its presence in the U.S. and other European markets.

I think that these plans can be translated into more shareholder incentives and an improvement in share price. But the moment to buy is now. I would really not miss a situation like this.

Rating: 3.0/5 (12 votes)

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