Interpublic Group of Companies Inc (IPG), an advertising agency holding company, is set up for a turnaround with new business wins this past year, and could see margins improve from 10% up to 13%, which would mean up to 30% improvement in profitability, says James Dix, Senior Research Analyst at Wedbush Securities.
“[IPG is] a fairly well-diversified name in terms of geography of revenue…advertising agencies are a play on global growth, as opposed to the more regional growth that you might find in any one particular market,” Dix said. “Their margins at the moment are below those of their peers, but as it seems like the trends for global growth, and for their growth in particular, because they have some new business wins this past year and probably are in as good a position in terms of the amount of new business they’ve won this year as they’ve been in several years, for next year look pretty good.”
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Dix expects IPG‘s new business to improve its margins over the next couple of years from 10% to up to 13%, and while that number doesn’t appear instrumental, it could mean up to 30% improvement in profitability for the company.
“For a service-based business, probably about the most important thing that you can get in terms improving your profitability is new business and faster growth, because you’re able to get a positive margin,” Dix said. “I think you could see margins over the next couple of years improve from say 10% this year to 12% to 13% in a couple of years, and although that doesn’t seem like a lot, when you talk about the difference between 10% and 12% or 13%, that is 20% to 30% improvement in your profitability, which can lead to a lot of growth in your earnings power.”
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