FP article - Mosaic was the top communications sector stock in 1999
Page URL: nationalpost.com
Wednesday, January 05, 2000
Despite the boom, little to brighten shareholders'
year
Paul Brent
Financial Post
Given that the Canadian economy has been booming, 1999 was a fairly disappointing year for the publicly
traded communications companies, which can't help but be pulled along by the positive economic activity.
Shareholders of just two of the four major public companies can look back fondly on the past year.
Mosaic Group Inc. (MGX/TSE) led the group as shares of the below-the-line marketing firm soared from under
$3 to a high of $11.30 in December. In Mosaic's case, the stock price has struggled to keep up with corporate
developments. Mosaic has been gobbling up sales and marketing firms in Canada, the United States and
Britain, in an effort to grow big enough to handle multimillion-dollar contracts from Fortune 500-type clients such
as Microsoft Corp., American Express, International Business Machines Corp. and British Airways.
Mosaic's revenue growth before acquisitions is expected to be 30% next year, according to analysts, and
earnings should rise by a similar amount.
The company's secret is it has stayed away from traditional advertising endeavours in favour of the more
pedestrian below-the-line work that companies are looking to outsource. This includes sales services, such as
providing in-store sales staff; marketing and communications services such as product launches and trade
shows; and sales force training.
Mosaic's main competitors are the below-the-line divisions of multinational advertising giants but this is still a
field dominated by regional players.
Envoy Communications Group Inc. of Toronto has also done well as a combination of acquisitions and account
wins has doubled its revenue over the past two years.
Envoy shares (ECG/TSE) spent the first four months of 1999 bumping along at $4 before soaring to the $8 to
$9 range. The shares closed at $7 yesterday.
Envoy is a hybrid compared with Mosaic, with about two-thirds of its revenue coming from traditional
advertising from offices in Canada and the U.S. (Communique in Toronto and Hampel Stefanides in New York).
Below-the-line divisions include design firm Watt Group, corporate identity and branding firm Fusion and Web
site developer Devlin.
Dundee Securities Corp. analyst Tim Sorensen notes that Envoy is trying to position itself to take part in the
dot-com bonanza like every other communications company but that it is still "basically a traditional advertising
agency." The main risks for a mainline advertising company such as Envoy, the analyst says, is that it is not an
international giant and could lose out in the consolidation of ad accounts by global advertisers.
Cossette Communications Group Inc. faces many of the same problems. The Quebec-based ad agency grew
from provincial obscurity to become Canada's largest ad company, accounting for about 4% of the domestic ad
market, but it remains vulnerable.
Like most agencies, its top five clients, headed by Bell Canada, make up the lion's share of its revenue. Though
it has a $40-million war chest for takeovers, it's a midget on the world scale.
Those risks may have held the shares back despite impressive profit and revenue gains. For the year ended
Sept. 30, profit rose to $8.3-million (52½ a share), from $7.1-million (47½) the previous year. Revenue rose 14%
to $94.1-million from $82.4-million.
Since its public offering of 3.6 million shares at $12.25, Cossette stock (KOS/TSE) has been thinly traded and
failed to keep its gains, falling from a high of $14.85 in September to below $13. Shares closed at $12.85
yesterday.
The fourth communications stock, MDC Communications Corp., could be a little easier to track if it goes ahead
with its plan this year to spin off its advertising and communications division Maxxcom into a separate public
company. The Toronto company is best known as a specialty printer of cheques, postage stamps and special
event tickets.
MDC could expect as much as $75-million (US) or $110-million (Cdn) from a Maxxcom offering, which would
include firms that do everything from advertising to sales promotion, public relations, corporate communications
and branding. In Canada, it owns firms such as Ambrose Carr Linton Carroll Inc. and McManus Elliott
Communications Inc.
MDC's shares (MDZa/TSE) spiked as high as $21.50 but ended the year below their start point of $14. They
closed yesterday at $12.25. |
