It might seem unusual that the market would bump up a company’s share price 5 per cent after it had just swung to a pre-tax loss of £2.6bn. But for WPP (WPP), the reboot of its dividend and a sign that it had survived the worst of the fall in the ad market offered investors some relief.
But the period’s headline numbers were far from upbeat: operating profit dropped by almost two-fifths to £382m. The global international agencies division, which accounts for the lion share of the group’s revenue, dropped by 12.8 per cent. Its smaller public relations business fared a little better, logging a 5.2 per cent fall – but it makes up less than a tenth of the group's sales.
The ad titan’s weak trading was compounded by an impairment charge of £2.7bn, as the pandemic hit the carrying value of some of its historical acquisitions and higher discount rates depressed the value of its future cash flows.
The marketing industry has been pummelled by the economic fallout of coronavirus, with fewer companies willing to shell out on discretionary spend such as advertising. But some sectors proved even more vulnerable than others – WPP noted that the automotive, luxury & premium and travel & leisure industries, which together account for just over a fifth of group revenue, declined by 11.7 per cent in the period.
It is unsurprising then that WPP has put cost savings at the top of its agenda, finding up an extra £296m in the first half and keeping it on track to deliver towards the upper end of the £700m-£800m target range. And it seems WPP will need it – its subsidiary GroupM has forecast that the global advertising economy will decline by 11.8 per cent in 2020, following growth of 6.2 per cent in 2019.
Looking ahead, assuming no further economic lockdowns in any major markets, WPP expects the outcome for the full year to sit within the range of a fall between 10 and 11.5 per cent for like-for-like growth in revenue less pass-through costs.
FactSet places consensus forecast EPS at 54.55p for the 2020 full year, rising to 71.72p in 2021.
|ORD PRICE:||652p||MARKET VALUE:||£8bn|
|TOUCH:||652-653p||12-MONTH HIGH:||1,078p||LOW: 484p|
|DIVIDEND YIELD:||1.3%||PE RATIO:||na|
|NET ASSET VALUE:||469p*||NET DEBT:|
|Half-year to 30 Jun||Turnover (£bn)||Pre-tax profit (£bn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £9.6bn or 781p a share|