Interpublic Group (IPG, Financial) is one of the world’s largest global advertising and marketing services companies. With approximately 54,600 employees and operations in all major world markets (over 100 countries), their subsidiary companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations, specialized communications disciplines and data management.
Interpublic Group companies create customized marketing solutions for clients that range in scale from large global marketers to regional and local clients. The works produced by the company for clients are specific to each industry and company needs. Offerings range from project-based activity involving one agency to long-term, fully integrated campaigns created by multiple Interpublic Group agencies working together.
Operating companies
The company has two reporting segments - Integrated Agency Networks (IAN) and IPG DXTRA.
IAN is comprised of our three global networks: McCann Worldgroup, Foote, Cone & Belding and MullenLowe Group, all of which provide integrated, large-scale advertising and marketing solutions for clients. The company’s Media, Data and Technology offerings are comprised of Mediabrands' global media services, Acxiom's data and technology capabilities, Kinesso's data-driven marketing solutions and Matterkind, an innovative media investment offering.
IPG DXTRA is a global collective of 27 marketing specialty brands, anchored across Weber Shandwick, Golin, Octagon, Jack Morton and FutureBrand. IPG DXTRA companies bring together unique combinations of in-demand skills and expertise in the areas of experiential, public relations, crisis and issues management, sponsorships, innovation, brand, influencer, digital, social and analytics across categories as diverse as sports, healthcare, entertainment, CPG, luxury, tech and financial services. Other units include Jack Morton, a global brand experience agency, and FutureBrand, a leading brand consultancy. Octagon is a global sports, entertainment and lifestyle marketing agency.
Financial review
The last reported full fiscal year, 2021, was a strong growth year for Interpublic Group with organic net revenues increasing 11.9% to $9.1 billion. Adjusted operating income (before restructuring charges) was $1.53 billion, compared to $1.1 billion in the prior year. Operating margins increased to 16.8%. Adjusted earnings per share in 2021 was $2.60 compared to $1.73 in the prior year. The company benefited from the post-pandemic economic recovery during 2021.
Interpublic Group typically generates substantial free cash flow from operations. In 2021, operating cash flow was $2.1 billion and capital expenditures were $195 million. Free cash flow uses were common dividends of $428 million and debt paydown totaling $583 million.
The company has a net cash position as of the end of 2021. Cash and cash equivalents totaled $3.27 billion and total debt was $2.96 billion (excluding capital lease obligations).
Valuation
The company gave forward-looking guidance during their earnings release as follows:
“As we look ahead, we anticipate that 2022 will be another year of strong growth, on top of our multi-year, industry-leading performance. As such, we are targeting full-year organic growth of 5% in 2022. With that level of growth, we expect that in 2022 we will consolidate the significant gains achieved in adjusted Ebitda margin over the past two years, at a level of approximately 16.6%.”
Analysts have issued consensus estimates for adjusted earnings per share of $2.67 in 2022 and $2.86 in 2023. This results in forward price-earnigns ratios in the low-teens range, which are reflective that the advertising industry can be very cyclical and often suffer during economic recessions. In 2009, revenues declined 13% and net income declined by over 50%.
The company pays a 3.2% dividend yield with a payout ratio below 50%.
Guru trades
There have been no guru purchases of Interpublic Group recently. Gurus who have reduced their holdings include Richard Pzena (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Charles Brandes (Trades, Portfolio).
Conclusion
Interpublic Group appears to be undervalued at this time by my analysis and may receive a multiple expansion as the company expands and grows its services dealing with digital, mobile, data management and direct-to-consumer ecommerce. The company's prodgious free cash flow gives them the flexibilty to make acquistions, buy back shares, or increase the common dividend.
