Recovery Imminent for Marketing Services? In Time, YES!

So, Sir Martin Sorrell says we are all in for a bad time. Is that really what he is saying? Or is it perhaps, just a method of persuading some budding entrepreneurs to sell their equity to him on the cheap? A bit of a scoundrelous attitude given his share price is up over 30% in the last 3 months. So what is really happening? Well media space sellers, TV channels and Newspapers have certainly seen a decline in advertising, but this has been the case for the last 7 years, has it been more pronounced? Well, yes it has. When the economy hurts and budgets are tight, it is the expensive media outlays that suffer, especially ones that do not provide a proven return. Is there evidence of cuts in other forms of marketing expenditure? Well, again, yes, if you look for it, but in reality, much has gone up too.

So let us dispel some myth from truth. The stock market performance of marketing services companies in the last 6 months has been excellent (see chart). Good marketing firms are doing well. Those that are in debt are finding it harder to raise cash, but if there is a good business case both the investors and banks are not turning their backs on them. Money is coming back to the market, albeit it at a slower pace and with more due diligence, but it is coming back. Those that bought other companies with debt are struggling to continue to buy, but they are also looking at alternative methods of buying using their equity and partnering with private capital to raise the cash needed to make good acquisitions.

What about the future? Well, here is where some supposition has to come in to play. Everyone is finding it harder to get a signature on a contract, they are taking longer to close, but they do exist. Money is starting to come back in to the markets, and equity values are keeping up in the listed companies of quality. A lot of the smart money stayed on the sidelines in the past few months, and have missed out on the 30% + rises in share prices. Those fund managers are looking a bit silly now, having under performed the market on the share price recovery. They are now buying in on an opportunistic basis, but there is still a lot of money on the sidelines. Over the next few months, they are going to find it very tough to stay out as the markets recover, and they should keep the rally going. Will we see old levels? Not for quite some time. Will we see some confidence come back in to the market led by the stabilisation of house prices and equity markets? Well, I think the answer is yes. Will that lead to more business for the marketing service sector? Again, with a delay, the answer is yes.

So don't sell out on the cheap, hang around, and sell on the upswing, when the groups start coming back in volume and the money starts to flow freely in to our part of the economy.