Investor jitters about the potential disruption caused by artificial-intelligence adoption has created a broad-based buying opportunity for the shares of European advertising agencies, according to Berenberg analysts.
The broker initiated coverage of Publicis Groupe SA, WPP Plc and Havas NV this week, giving all three stocks buy recommendations. The Stoxx 600’s media subgroup climbed as much as 1.3% on Tuesday, with advances led by WPP and Publicis.
The sector had been hurt by company-specific structural issues, and has recently come under pressure again because of AI concerns, according to the Berenberg analysts. This has led to discounted valuations as well as share-price underperformance, they said.
“While the industry continues to face long-standing headwinds from in-housing and rising competition, and more recently AI, we believe agencies are adapting rather than fading away,” analysts including Anna Patrice and Davide Amorim wrote in a note.
They view Publicis as being “ahead of the pack,” while Havas is an “attractive challenger story.” WPP faces a tougher near-term transition even though its recovery potential is still intact, according to the analysts.
Berenberg’s upbeat view on WPP is more contrarian than its positivity toward Publicis and Havas. Only about a fifth of analysts tracked by Bloomberg have a buy or equivalent rating on the UK company. Both Publicis and Havas have mainly buy recommendations.
According to the Berenberg analysts, ad agencies are “still relevant” in the era of AI disruption. “The industry is not dying, but is instead reorganizing around a stable hybrid model,” they wrote.