1.

Omnicom (OMC) 1-Page Appraisal

Omnicom is a global holding company which is among the five largest advertising agencies in
the world. While its main focus is Advertising, which accounts for roughly half of the business
(56% of revenue, 10-K 2019), they are also involved in Customer Relations Management (26%),
Public Relations (9%), as well as Healthcare Advertisement (7.5%).
As a result of the COVID-19 crisis, the advertising industry took a large hit in terms of valuation,
and is expected to see even more in terms of performance for the rest of 2020, followed by a
gradual recovery.
Yet their results for Q1 2020, were fairly surprising for me as they were relatively unchanged
when compared YoY to Q1 2019. Revenue was down -1% from 3,468m to 3,406m and Net
Income down only -1.9%, hardly the end of the world. (Of course, as the year continues, I do
expect that the effects of COVID will manifest more clearly in their financials, but perhaps not
as severe as the market estimates.)
Omnicom, with its size and low capital requirements, makes for a great business, having
maintained a Pre-Tax ROIC of ~20% over the past 10 years.
Their largest customer makes up only 3% of their total revenue, and their
next 100 largest clients represent approximately 51% of revenue,
eliminating large customer risk. Their clientele is diversified throughout
multiple industries as well, as shown by the tiny right graph (Q1 2020
Presentation)
In the scenario that Omnicom is able to return to historical median
multiples, there is a sizeable margin of safety at current prices, for this solid business.
Current Hist.
Curren Industr Median
t OMC y (OMC) Implied EV Equity Value Imp. V/Share

Sales 14,891.70 1.10 1.06 1.33 19,805.96 16,167.36 $ 75.45

EBIT $ 2,193.90 7.47 9.79 8.98 19,701.22 16,062.62 $ 74.96

EBITDA 2,295.30 7.14 6.25 10.24 23,503.87 19,865.27 $ 92.71

Net Debt 3,638.60 $ 81.04
S/O 214.28 Current Price $ 56.33
Margin of
Safety 30.5%
Also, using a DCF with the assumption revenue drops 25% in 2020, with steady recovery for the next 5 years, a 3%
terminal growth rate, and a 10% Levered Free Cash Flow Margin, that the implied share price was still ~$70, a 23%
upside to today’s prices. This would mean that this stock is undervalued by even the street’s own guess-timates!