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Challenges in the ad market, but WPP keeps growing

The marketing company had a tough end to the year, but currency rates have flattered these numbers
March 3, 2017

It's been a tough year for the advertising industry and WPP's (WPP) veteran chief executive Sir Martin Sorrell wasted no time telling analysts on a conference call why. Brexit, the Trump administration, monetary policy and the subsequent GDP squeeze, all featured in his explanation of why companies have less money to spend on advertising. On an industry level, digitalisation continues to hurt traditional media outlets.

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Looking at WPP's numbers, it would be easy to assume that the group is riding out the challenges. On a reported basis, billings rose 16 per cent to £55bn, sparking double-digit growth in headline revenue and profit. But foreign exchange movements contributed 10.4 per cent to the reported revenue rise. On a like-for-like basis, revenues rose just 3 per cent and pre-tax profit grew 8.5 per cent at constant currency - which failed to meet management-set targets.

The final quarter was particularly difficult. To a certain extent this was explained by a comparatively strong 2015, but the group also felt the loss of its AT&T contract for the first time. More contracts were lost in the final quarter, including Volkswagen. Combined with the difficult market conditions, this has created a gloomy outlook for the start of 2017.

But there are positives to be found in these results. Margins are heading fast towards the group's target of 20 per cent. After stripping out incentives and the merger with STW in Australia, they rose to 19.5 per cent in 2016. Acquisitions also continue apace, with 56 deals completed in the year, giving scope for further growth. WPP also seems better aligned with the changing market trends, as 59 per cent of revenues comes from emerging markets and digital operations.

Broker Numis expects pre-tax profits and earnings to continue to grow and has forecasts of £2.2bn and 125p, respectively, for the year to December 2017 (from £2bn and 113p in FY2016).

WPP (WPP)

ORD PRICE:1,786pMARKET VALUE:£22.9bn
TOUCH:1,785-1,786p12-MONTHHIGH:1,928pLOW: 1,470p
DIVIDEND YIELD:3.2%PE RATIO:16
NET ASSET VALUE:728p*NET DEBT42%

Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201210.41.1066.228.50
201311.01.3072.434.21
201411.51.4582.438.20
201512.21.4990.044.69
201614.41.8911056.60
% change+18+27+22+27

Ex-div: 8 Jun

Payment: 3 Jul

*Includes intangible assets of £15.4bn, or 1,205p a share