Investment Grade TMT Outlook Key themes for 2025

Key Points WPP * Inorganic Growth Limited: WPP's focus on organic growth and integration of AI (WPP Open) to enhance operational efficiencies, limiting major inorganic moves due to increased leverage. * 2024 Guidance Downgrade: Impacted by challenges in the TMT sector and loss of Pfizer contract, but optimism for 2025. * Shift in Focus: Moving beyond restructuring efforts, concentrating on competition and expansion. Telecoms * Market Structure Improvements: BT Group and Vodafone may benefit from improved market structure in the UK and Italy, while Orange and Telefonica may see improvements in Spain. * Telenor and CK Hutchison: Telenor as a potential consolidator in Denmark and Sweden, CK Hutchison potentially exiting these markets. * German Regulatory Decisions: Telefonica may increase market presence in Germany depending on regulatory decisions. * Recommendation: Switch out of low-BBB rated TELEFO 2.592% 2031s into better-rated BRITEL 3.75% 2031s for a 2bp pick. Advertising Agencies * Scale and Efficiency: Scale becoming increasingly important for media buying and negotiations with digital platforms and ad tech vendors. * Omnicom/Interpublic Deal: Targets $750m of annual cost synergies, with WPP focusing on restoring balance sheet metrics. * **Publicis**: May have flexibility to consider inorganic options, with potential for headline risk. Broadcasting and Streaming * **Netflix**: Well-positioned to navigate fragmented content landscape, with increasing demand for on-demand content. * **Content Spending**: Netflix expects to spend$17bn in 2024 on content, expanding its library and local language content. * Broadcasters: Facing challenges from streaming platforms, with some broadcasters expanding into AVOD space. Satellite * Intelsat and SES: SES acquired Intelsat for $5bn, aiming to maintain investment grade credit metrics and return cash to shareholders. * **Satcom Market**: Expected to grow rapidly, with lower orbits (MEO and LEO) showing particularly high growth rates. * **Starlink**: Challenging legacy operators in Aviation and Maritime markets. Payments * **FIS and Fiserv**: Both companies saw robust earnings in 2024, with outlook upgrades and strong cash flow generation. * **FIS**: Completed sale of 55$1.23tn in 2025, with IT services expected to increase +9.4% to $1.73tn. Media * Omnicom: Merged with Interpublic, creating the largest advertising holding company and a stronger competitor. * ITV: Potential takeover candidate, with strong balance sheet and low leverage, but facing strategic uncertainties and muted earnings in 2025. * Bertelsmann: Continues to exhibit a steady craving for M&A, with investments in Penguin Random House and BMG. * Netflix: Initiated with an Overweight recommendation, with strong competitive positioning and ongoing top-line growth supported by operational leverage benefits.