The global advertising market is slowing more quickly than originally anticipated and the slowdown increasingly looks structural in nature, as consumers hunker down. It is tough to see how the company can buck this trend. On our revised earnings, the valuations were unappealing, hence we exited the stock.
Dentsu is Japan's largest ad agency and the fifth largest in the world. It not only dominates TV advertising but also acts as the largest broker of online advertising, and is especially strong in sports-related advertising. As Japanese consumption rises, there should be a strong rebound in advertising spending - a trend Dentsu is well situated to benefit from. The Beijing Olympics in 2008 are an added bonus.