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$OMC reports Oct 22.
Pre acq, OMC was doing $1.5B FCF, IPG $1B. $2.5B combined. Subtract $120MM from divestitures = $2.38B run rate.
2026(e) cost synergies $900MM. Est. cost to get them $250MM. Assume 60% of $650MM savings drops to bottom line (FCF) = $390MM on top of $2,380.
Omnicom ($OMC) trades at about 7.3x FCF (near the low end of its four-decade range), and pays most of its cash out to shareholders.
The current price doesn't make sense to me, so I put together a three-page write-up on it to distribute
Feedback welcome.
rockwoodnotes.com/omnicom
AI risk wasn't addressed well, so here's my expanded thought process:
What has always made ad agencies resilient is a variable cost structure (the largest expense is people) and global brands needing more complex services over time.
Lose 15% of your business? The people who were servicing the accounts you lost get laid off. Margins hold. New business comes later. Life goes on. In 2009 and 2020, Omnicom's revenue fell about 12% and margins held around 12%.
Historically, agencies (and service businesses in general) were paid for time/materials. Now clients are moving to fixed fees for some work, partly because tools have made the work faster and cheaper.
(I don't think) the AI fear for $OMC $PUB.PA $WPP is that agencies won’t be needed anymore. It’s that clients push fees down because the same work now takes less time.
But assume that's true. If the work takes less people, Omnicom needs less people. It's an incredibly people-intensive business. Cheaper work means lower costs, not just lower fees, so I'd expect minimal margin compression, and maybe even expansion. Also, under fixed fees, the agency keeps whatever efficiency it finds.
I don't see clients squeezing Omnicom's fees while Omnicom keeps the same headcount. That just doesn't make sense to me.
On the other hand, if fees fall faster than Omnicom adds new services/clients, profit can fall in absolute terms even if margins hold. But my base case already assumes zero top-line growth. I’m betting on per share growth from synergies and buybacks, which can absorb a lot of fee compression if I'm wrong and that's what happens. Margin improvement and top-line growth are certainly welcome. At close to forty-year low multiple, I think it’s a good bet.
If you’ve never physically seen an old Moody’s Manual, you don’t understand how insane it is that Buffett read through all the 1951 volumes (more than 10k pages) twice. And he went line by line, as something like GB&W shows. You wouldn’t catch that skimming or reading passively.
At Berkshire’s 2024 meeting, Buffett recalled finding a Wisconsin railroad in a Moody’s manual that “…had a bond that was actually the common stock, and they had a common stock that was actually a bond.”
I looked into how it worked. Free to read.
rockwoodnotes.com/gb-w-buffe…
Rockwood Notes retweeted
The master biographer reflects at 91. The Robert Caro interview.
0:00:00 – How Caro gets people to talk
0:05:03 – Does America need a little more Moses today?
0:12:42 – Moses the young idealist
0:17:57 – Watching Moses lose power
0:24:01 – Did Moses realize he was changing?
0:27:53 – Building during the Great Depression
0:32:51 – The threats and promises of Lyndon Johnson
0:36:08 – Could Kennedy have passed Johnson’s laws?
0:41:00 – Getting a book down to one sentence
0:46:21 – All the material that never made it into the books
0:52:59 – Loneliness
$MCG.L +12% today on firm offer. 1H27 expected close.
$MCG.L 46p non-binding cash offer this AM from Autobuses de Leon, which is owned by Asterion and CMC, which is Cosmen family firm that already owns 26% of MCG.L. Stock at 39.5p.
Company was already monetizing assets to pay down debt. Family had been holder for 21 years.
Anyway I’m trying to convince him to sell everything and buy $OMC and then show me in another decade.
Rockwood Notes retweeted
“Cyclicals are like blackjack: stay in the game too long and it’s bound to take back all your profit.”
Peter Lynch
Have been eager to read this one.
Was revisiting my old $RIG thread.
Rates were close on the short end of the curve, but assumptions ended up being too optimistic, especially margins. OTOH, capex was a lot lower.
My first members-only special situation closed today. $PERF paid $2.00 cash. +3% in 9 days from publishing (SPY -1%). I expected it to close in early November, so I’ll take it.
The write-up is now free to read:
rockwoodnotes.com/members-on…
Posted 3 members-only special situations past week. One US-listed, two int’l, three industries.
If they close, $4k in each could cover cost of rockwoodnotes.com membership.
If they don’t close, well…you know.
Will make public after they play out.
Not investment advice
$OMC another quarter of organic top line growth, profits and margins going up, shares outstanding going down. Synergies on track. Boring. Predictable. Resilient. ~6x 2028e FCF.
circlace (5029.T) being bought for ¥2,020 per share cash. Board recommending shareholders sell. Two major shareholders (63% of shares) have agreed. Last close before announcement was ¥950.
Big premium to a not cheap-looking stock.
Reminder, rockwoodresearch.com is a free website with event monitor, insider transactions, 13-f's etc. No paywall.
Putting out some updates to reduce errors / improve summaries.
If you have suggestions (looks, features, bugs etc), lmk. Or maybe we all just use Claude now.
Some things I’ve been looking at recently:
$AAME trades @ ~5x (2025) EPS. 0.25x TBV. Bad corp gov. Thought it might go dark but just filed 2025 10k/a. Own minuscule amount for fun < $1.20/sh.
I did post a few members-only special situations I thought were attractive. One is about finished now.
$OMC reports Oct 22.
Pre acq, OMC was doing $1.5B FCF, IPG $1B. $2.5B combined. Subtract $120MM from divestitures = $2.38B run rate.
2026(e) cost synergies $900MM. Est. cost to get them $250MM. Assume 60% of $650MM savings drops to bottom line (FCF) = $390MM on top of $2,380.
And, of course, my largest holding is $OMC, which I call my narcan that keeps me from buying worse ideas (like everything I just tweeted about).
Looking forward to results tomorrow and stock continuing to go +/- $10 around $80 for eternity.
$OMC reports Oct 22.
Pre acq, OMC was doing $1.5B FCF, IPG $1B. $2.5B combined. Subtract $120MM from divestitures = $2.38B run rate.
2026(e) cost synergies $900MM. Est. cost to get them $250MM. Assume 60% of $650MM savings drops to bottom line (FCF) = $390MM on top of $2,380.