Dyer says agencies poised to eat into Scangroup market share

Money Markets

Mr Bharat Thakrar, Scangroup founder. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• WWP Scangroup is likely to see its market share continue to shrink as its revenue generation is negatively impacted.

Marketing services firm WWP Scangroup is likely to face increasing competition from international agencies coming into the Kenyan market, analysts at Dyer & Blair Investment Bank have said.

As a result of the rivalry, the agency is likely to see its market share continue to shrink as its revenue generation is negatively impacted.

“We anticipate Scangroup market share in Kenya to continue declining as new international agencies form partnerships in the industry,” said Dyer & Blair.

The investment bankers say the international agencies include Weber ShandWick which has partnered with public relations agency Gina Din Corporation Communication.

From a revenue perspective, WPP Scangroup has not benefited from acquisitions, the analysts concluded.

“Acquisitions have not impacted the company’s top line performance. We are of the view that the company should look into consolidating its existing business to impact on the topline performance,” said the analysts.

With growing competition and a declining market share, the analyst believe the company is overvalued, with little upward potential in its stock price.

The share is expensive based also on the prices of its peers. It has a forward price-to-earnings (P/E) ratio of 19.7 against an average of 15.0 for companies in the same business, the analysts said.

The choice of comparable peers includes global companies, West Africa and Kenyan companies offering similar services as WPP Scangroup.

“WPP Scangroup’s valuation looks expensive in our opinion, trading at a forward P/E and EV/EBITDA multiple of 19.7x and 11.7x against a peer average 15.0x and 8.9x respectively,” said the investment bank using its estimates and data from Bloomberg.

READ: MWANYASI: Scangroup M&A strategy hits investors

Among the peers of WPP Scangroup are Global WPP with a P/E of 14x, Publicis Groupe of South Africa, HAVAS South Africa at P/E of 17x, ValueCommerce at P/E of 17 and Nation Media Group with a P/E of 11x. The analysts noted that digital advertising is growing rapidly, particularly in comparison with traditional media such as print.

Slow decline

“Historically, the company has registered low single-digit growth averaging at a three-year CAGR (compounded annual growth rate) of 1.30 per cent,” said Dyer & Blair. The growth has mostly been driven by a slow decline in print and radio advertising as well as competition from other firms.

“We project a further flat performance on advertising revenue over the forecast period resulting in a three-year CAGR of 0.37 per cent,” said Dyer &Blair.