Havas (HAV.PA): The pain from Spain – Q1 organic revenues miss at +3.3%

With its sizeable exposure to France and Iberia, Q1 Revenues from Havas were never going to be that impressive, so the +3.3% organic revenue growth reported this afternoon should not have come as too much of a surprise. It was however shy of our +3.8% estimate, albeit net new business wins of €605m (>+50% YoY) were comfortably ahead of our €400m estimate.  By region, the Q1 surprises were a better than expected  +5.1% from France (WYTe +1%), but considerably weaker from UK at  -0.2% (WYTe +4%) and Rest of Europe at -2.4% (WYTe at +2%); the       latter notwithstanding a strong performance out of Germany (similar to Publicis). At +3.6%, organic growth from North America was also comparable to Publicis, while Havas’s >+12% from both AsiaPac and Latin America were up with the best in class.
As with Aegis, new management at Havas (CEO David Jones) is working hard to bring in new business and drive organic revenue growth. Unfortunately the geographical exposure to Spain (we est c.10% of group revenues) is depressing current revenue growth while the 20% sourced from France provides a somewhat more nebulous threat from a possible change of government after May 6th.  While the ungeared balance sheet and presence of 33% owner Vincent Bollore continues to provide scope for a potential bid approach, this is not new and will probably need to wait until his Aegis holding is resolved.  Without an immediate catalyst and       facing increasing macro and possibly political headwinds, the rally in Havas’s shares may be running out of puff.  Lacking the global reach or emerging markets and digital exposure of its larger rivals, Havas’s shares are beginning to look up with events and within spitting distance of its better positioned rivals.

Havas  (HAV-FR)  
Share price                                             €4.2
Growth rating FY14                            +2.8%
Revenue CAGR FY12-14                 +3.4%
Target CAGR (FY3)                            +3.4%
Target price                                           €4.1
Upside                                                      -2%
Recommendation:  Trading           SELL

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