WPP Group Plc’s (WPPGY) wholly-owned operating company Wunderman, the world’s largest digital and interactive network, entered into an agreement to acquire a 51% stake in Comwerks Pte Ltd, Singapore’s leading full service digital agency specializing in digital media and web 2.0 solutions.
 
Comwerks, founded in 2002, employs over 22 people and has a client base including eBay, Ministry of Law, Ministry of Manpower, National University of Singapore and People’s Association. The agency’s revenues for the year ended 31 December 2009 were S$1.5 million, while its gross assets were roughly S$1.0 million.

The deal will strengthen Wunderman’s presence and will make Comwerks one of the top 5 digital agencies in Singapore. Also, it falls in line with WPPGY’s strategy of expanding in important markets and redefining its digital media capabilities.  
 
WPP Group Plc remains focused on new markets, new media and consumer insight.  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. 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 revenue to outperform 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 are the major causes of concern in the near- term.
 
We currently maintain a Neutral recommendation on the stock, as supported by Zacks #3 (Hold) Rank.

 
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