Broker snap: Organic growth a problem at WPP, says Jefferies

21st Jun 2012 10:27

Jefferies has maintained an 'underperform' rating for advertising and media giant WPP following Wednesday's acquisition of AKQA, saying that questions still remain over the extent of the company's digital organic growth.Sir Martin Sorrell's firm announced that it has agreed to buy the assets of AKQA, the agency which provides digital communications campaigns spanning social media, mobile, interactive experiences, gaming and content creation.Jefferies says that at an enterprise value of $540m, the transaction looks expensive; the price is 2.4 times AKQA's 2012 sales and 12.8 times its earnings.The deal, expected to be mildly accretive in both 2012 and 2013, is worth 12 basis points of group organic growth to WPP in 2012 and 18 basis points in 2013, the broker says.In the first quarter, WPP's digital organic growth rate was around 8%, whilst peers were grown by 15% in this region. "In our view, the transaction is likely aimed at addressing underperformance in digital organic growth.""We view WPP as more reliant on acquisitions than peers and see few remaining available digital properties that WPP could acquire to meaningfully address the digital organic growth underperformance following Publicis' purchase of Digitas, Razorfish, and Rosetta."The broker has kept its target price for WPP at 680p.Shares were trading 0.58% lower at 773p by 10:55.BC