WPP upgrades guidance, citing recovery

Shares in WPP (WPP) ticked up 2 per cent on results day as the FTSE 100 media giant said it had returned to 2019 revenue levels in 2020, a year ahead of plan. The group cited a like-for-like (LFL) improvement of 26 per cent in the second quarter alone, buoyed by clients spending on digital advertising. Overall, LFL half-year sales rose 16 per cent.

It helped that the group made several new business wins – with big names including UK pharma group AstraZeneca (AZN), US investment bank JP Morgan (US:JPM) and dating app Bumble (US:BMBL).

WPP attributed the recovery in the first six months of the year to vaccination programmes in its main markets which, in turn, stimulated economic activity. In-house agency GroupM re-hauled its advertising forecast, now expecting the “global advertising economy” to grow by almost a fifth in 2021 (not taking into account political ads).

The group said that digital media was central to that spike, with the pandemic catalysing existing trends towards e-commerce. GroupM reckons digital media spend will rise more than a quarter this year.

Looking further down WPP’s income statement, operating profits came in at £484m – bolstered by the group’s considerable top-line growth, which moved it back into the black after losses of £2.8bn last year when customers around the world slowed or stopped their ad expenses as coronavirus took hold.

Management is sanguine about what’s to come. The group has raised its full-year guidance, now expecting organic revenue growth of 9-10 per cent (as opposed to mid-single-digits) and a headline operating margin towards the upper-end of a range of 13.5 per cent o 14 per cent. The group now plans capital expenditure of £450-500m this year.

Supporting that sense of confidence, the group has raised the interim dividend by a quarter to 12.5p. It plans to buy back £350m of shares in the second half, after a £248m repurchase in the first.

Broker Numis expects adjusted pre-tax profits of £1.2bn for 2021 with EPS of 70p, up from £1bn and 59.9p.

Shares in WPP have risen more than 50 per cent in the past 12 months; no mean feat in an industry whose health is often closely linked to the wellbeing of the overall economy. A forward price/earnings (PE) multiple of 14 times puts WPP slightly ahead of peers Omnicom and Publicis. But the half-year signs are encouraging, as is the group’s refreshed guidance. Hold.

Last IC view: Hold, 916p, 11 Mar 2021