WPP Group’s G2 Acquires DPI – Analyst Blog

WPP Group Plc’s (WPPGY) wholly-owned operating company G2 acquired the majority stake in DPI, Greater China’s leading integrated shopper-marketing consultancies. G2 specializes in building brands outside traditional advertising. The company is ranked fifth among the top global marketing services agencies.

 

The acquired company, founded in 1996 in Hong Kong, employs over 80 people and generated revenues of approximately HK$29.7 million for the year ended December 31, 2009 and had gross assets worth HK$48 million.

 

WPP Group Plc remains focused on new markets, new media and consumer insights. The strategic acquisition of DPI not only compliments its focus on new areas but also strengthens WPP Group’s foothold in its fourth largest market with revenues of approximately $900 million.

 

We believe the company’s dominant market share in many areas and pricing power will enable it to improve margins and sustain future profit growth. In the first half of 2010, the company delivered encouraging results with earnings per share rising 48% year over year. Expectations of similar performances, going forward are high as is evident from management’s outlook for the second half.

 

Management expects revenues to out perform throughout the fiscal year 2010. Margins are expected to grow at least 1.0%, while pro forma EPS is likely to reach the high 2008 levels.

 

However, WPP Group’s operations in a highly competitive industry having business worldwide with significant exposure in US markets dampen our positive outlook to some extent. Even more so because of skepticism over the sustainability of US growth and the possible impact of the Eurozone debt crisis on the European results, which remain major causes of concern in the near term.

 

We currently maintain a Neutral recommendation on the stock, as supported by Zacks #3 (Hold) Rank.