WPP’s (WPP) shares were marked up on release of its first-quarter trading update, despite a decidedly mixed global performance.
On the one hand, as anticipated, the advertising giant endured the impact of “certain significant client losses in 2018” – particularly in the US. Not exactly encouraging, given that North America constitutes more than a third of total sales. However, chief executive Mark Read cited good progress on the three-year plan, launched in December, “to return WPP to sustainable growth” and the group maintained its guidance for 2019.
Total revenues – on a like-for-like basis, less pass-through costs – dipped by 2.8 per cent to £2.9bn, dampened by an 8.5 per cent decline from across the pond. Central to the group’s stateside issues were “assignment losses” among car, pharma and fast-moving consumer goods businesses. Still, this performance was in line with WPP’s budgets and we know that management is prioritising its problem region; as outlined within March’s preliminary results, it is investing in leadership, creative talent and technology here.
In more positive news, agencies formed out of internal WPP tie-ups are showing signs of new-business success. Wunderman Thompson – the latest merger – has won battery maker Duracell’s international creative account. Moreover, average net debt landed at £4.16bn as at 31 March – down from £4.88bn a year earlier – although this should be seen in the context of the disposal of non-core assets. WPP added that the pre-announced sale process of data business Kantar is advancing well.
The reaction among brokers was varied. Numis kept a “reduce” rating on the stock, noting that its update was worse than it expected. The shares “look optically cheap but we still see material challenges and continuing forecast pressure as WPP adapts to the new/changed marketing services environment”. Barclays, however, was more bullish – citing “valuation” as one of the four reasons behind its decision to upgrade its rating from “equal weight” to “overweight”, alongside organic growth “not getting worse”, the Kantar disposal and “some confidence” in bosses’ turnaround strategy.
