BNP Paribas downgraded a number of European and US advertising companies and said that its outlook on the advertising market remained a cautious one.
In a research note, BNP Paribas analyst Christopher Darbyshire said: "A return to the dependable, cash-generative aspect of the advertising agency business model is a long way off."
BNP Paribas cut both Publicis and WPP to "underperform" from "outperform" against the performance of European stocks and to "neutral" from "outperform" in comparison with the rest of the advertising sector. Publicis' French rival Havas had its price target cut raised to €3.50 from €3 and its "underperform" rating was restated. The note said that Havas had severance costs and margin deterioration concerns ahead of it in 2003.
In his note, Darbyshire said WPP's options were increasingly limited by its diminishing debt capacity after the company's management repurchased shares throughout 2002.
"We expect a reduction in acquisition growth going forward as the company prioritises returning cash to shareholders," he said.
Publicis stock was described as an "overhang", which related to its recent $3bn (£1.9bn) acquisition of Bcom3 and the subsequent merger of the two agency groups. He said that the move might see Publicis use its current excess cash situation to buy back shares.
The news helped to push Publicis down 3.4% to €23.32. WPP was also down dropping 2.63% to 472p. Havas shares fell 1.44% to €4.8.
As well as Publicis and WPP, the troubled Interpublic Group of Companies and Omnicom Group were cut also. Darbyshire cut the US firms to "underperform" from "neutral" versus the sector.
The analyst picked up on Interpublic's current financial woes relating to its overstating of its earnings by $181.3m (£114.8m) over a period of five years.
This morning, Interpublic hired Cordiant's group finance director Art D'Angelo to take over the top finance post at McCann-Erickson WorldGroup, the source of its recent accounting problems.
As for Omnicom, Darbyshire foresaw an uncomfortable start to 2003, with $1.75bn in convertible redemptions and over $1bn in working capital outflows expected by September 2003.
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