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WPP heading in right direction

Hoping its three-year turnaround plan can spark a return to sustainable growth, the advertising group saw the decline in sales growth narrow during the first half of the year
August 12, 2019

It might seem odd that WPP (WPP) reporting a 2 per cent fall in like-for-like revenue (less pass-through costs) at the half-year stage sent shares up by 8 per cent. But as the embattled advertising giant navigates a three-year turnaround plan, what investors picked up on was the slower rate of decline. While the first three months of the year saw a 2.8 per cent drop, this had slowed to 1.4 per cent in the second quarter with a return to growth in the UK and narrower losses in North America. That's progress of sorts.

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Accounting for 35 per cent of group sales (minus pass-through costs), North America is both the largest and weakest performing region as it continues to feel the impact of client losses from 2018. Although there was a 6.9 per cent like-for-like revenue decrease to £2.2bn, this reflects an improvement from the 8.5 per cent tumble in the first quarter. Chief executive Mark Read points to this pattern as a stabilisation of the business but the group still expects overall like-for-like revenue less pass through costs will fall for the full year, guiding to a 1.5-2 per cent contraction. A return to growth is targeted by the end of 2021.

Net debt has come down by 10 per cent on the back of £304m in disposal proceeds, but it still stands at an eye-watering £4.3bn. With the proposed sale of a 60 per cent stake in market research group Kantar to Bain Capital announced last month, around $1.9bn (£1.6bn) will be used to service this debt whilst $1.2bn will be returned to shareholders. There was a free cash flow outflow of £513m during the period though the group insists this is consistent with seasonal media buying activity which is weighted towards the second half. In 2018, an outflow of £209m at the half year stage reversed to a £1.1bn inflow by year end.

Bank of America Merrill Lynch expects adjusted cash profits of £2.2bn and EPS of 97.8p for the full year, falling to £2bn and 97.4p in 2020.

WPP (WPP)    
ORD PRICE:979pMARKET VALUE:£ 12.4bn
TOUCH:978.4-979.4p12-MONTH HIGH:1,324pLOW: 791p
DIVIDEND YIELD:6.1%PE RATIO:17
NET ASSET VALUE:763p*NET DEBT:43%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20187.4984753.822.7
20197.6247825.022.7
% change+2-44-54-
Ex-div:03 Oct   
Payment:04 Nov   
*Includes intangible assets of £15bn or 1,192p a share