Quiet Optimism as Bear Stearns Begins Tracking Publicis

Bear Stearns has just initiated coverage of Publicis Groupe in recognition that the Paris-based holding company now has the global scale and quality of assets to become “a top player” in the marketing communications business.

However, Bears Stearns analyst Alexia Quadrani tempered her enthusiasm for the $5 billion company’s stock, citing the slow pace of the industry recovery, particularly in Europe, and the fact that Publicis shares have enjoyed a strong run-up this year, climbing 34 percent year-to-date and 87 percent from March lows. (Shares were trading at around $30 last week, compared with a 52-week low of $15.47.)

“We are also mindful that the company continues to move through its integration effort [of Bcom3] and the market may discount Publicis’ complex debt structure and closely held nature of its shares,” Quadrani cautioned.

Elisabeth Badinter, the daughter of Publicis founder Marcel Bleustein-Blanchet, and Dentsu, Publicis’ new equity partner, hold some 36 percent of the company’s voting control. However, Bear Stearns gave Publicis a “peer perform” rating, with the expectation that its shares will perform generally in line with the industry and the market.

Longer term, Quadrani believes Publicis has upside potential as the recovery gathers steam. Given Publicis’ aggressive acquisition strategy during the past two to three years, Quadrani does not rely much on the company’s historical trading range relative to the market on an absolute basis.

“However,” she wrote, “it is interesting to note that Publicis has generally outperformed WPP, Interpublic and Havas over the past three years and has only slightly trailed market leader Omnicom.”