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WPP delivers perfect pitch

WPP posted strong gains despite geopolitical challenges and lingering uncertainty
August 26, 2015

Investors may breathe a sigh of relief after browsing half-year results from WPP (WPP), which typically serves as a bellwether for the global economy. The advertising titan posted modest constant-currency net sales growth across all its territories and divisions. Coupled with assiduous cost control, that sent headline operating profits up 8 per cent to £669m.

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WPP - which counts Apple, Nike and Pfizer among its clients - benefited from industry consolidation and rising advertising and promotional spending in its major markets. It also cashed in on media clients seeking to reduce costs, embrace new performance measures and adapt to the shift of media consumption to mobile devices.

The owner of Kantar, GroupM and Ogilvy & Mather has sought to outpace competitors by targeting growth markets such as digital media, data analytics and developing economies. It has invested in technology - it acquired a stake in ad-tech leader AppNexus in September - doubled down on data by partnering with the likes of media-measurement firm comScore, and recently bolstered its content offerings by teaming with Daily Mail and social media platform Snapchat to launch Truffle Pig, a content marketing agency.

Underlying net sales rose 2.8 per cent in the key North American market as strong demand for advertising, media buying and healthcare communications offset tepid trading in public relations, branding and data investment management. However, headline operating profits fell in emerging markets due to the well-documented macroeconomic problems in China, Russia and elsewhere.

Advertising and media investment management - which account for about 45 per cent of group revenues - led the group's top-line growth with a 3.2 per cent rise in underlying net sales. But gains there were tempered by tepid demand for data investment management in the US, UK and Asia Pacific.

Despite the recent market turmoil, WPP expects gains in emerging markets and digital media to fuel growth this year. Management expects underlying net sales to rise more than 3 per cent and operating margins to expand this year. Along with acquisitions and share buybacks, it expects those underlying trends to drive adjusted annual EPS growth of 10 to 15 per cent in the long run.

Broker Numis trimmed its forecasts and now expects pre-tax profit of £1.64bn, giving EPS of 93.1p (FY 2014: £1.51bn and 84.9p).

WPP (WPP)
ORD PRICE:1,324pMARKET VALUE:£17.2bn
TOUCH:1,323-1,324p12-MONTH HIGH:1,616pLOW: 1,091p
DIVIDEND YIELD:3.2%PE RATIO:13
NET ASSET VALUE:576p*NET DEBT:43%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20145.4749127.711.62
20155.8471043.715.91
% change+7+45+58+37

Ex-div: 8 Oct

Payment: 9 Nov

*Includes intangible assets of £11.8bn, or 908p a share