Interactive Investor

ii view: ad agency WPP already exploiting AI for clients

Shares in this FTSE 100 company fell 27% in 2022 and remain on the backfoot this year. Buy, sell, or hold?

30th August 2023 15:36

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Like-for-like revenue up 3.5% to £7.22 billion
  • Pre-tax profit down 2.9% to £546 million
  • Interim dividend unchanged at 15p per share
  • Adjusted net debt up £0.3 billion year-over-year to £3.5 billion

Guidance:

  • Now expects full-year like-for-like sales growth of between 1.5% to 3%, down from a previous 3% to 5%

Chief executive Mark Read said:

“Our performance in the first half has been resilient with Q2 growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects. This was felt primarily in our integrated creative agencies. China returned to growth in the second quarter albeit more slowly than expected. In the near term, we expect the pattern of activity in the first half to continue into the second half of the year.”

"We have exciting future plans in AI that build on our acquisition of Satalia in 2021 and our use of AI across WPP. We are leveraging our efforts with partnerships with the leading players including Adobe, Google, IBM, Microsoft, Nvidia and OpenAI. We are delivering work powered by AI for many clients including Nestlé, Nike and Mondelēz. AI will be fundamental to WPP's future success and we are committed to embracing it to drive long-term growth and value."

ii round-up:

WPP (LSE:WPP) is a major global advertising company. Its services include core communication such as media buying and planning, along with Public Relations. 

For a round-up of these latest results announced on 4 August, please click here

ii view:

Originally a maker of wire baskets and teapots called Wire and Plastic Products, WPP Group today operates in more than 100 countries employing over 110,000 people. Global Integrated Agencies taking in ad-related services generates most of its revenues at around 85%, followed by Public Relations at almost 9% and other Specialist agencies the balance of around 6%. 

Geographically, North America generates its biggest slug of sales at just under two-fifths, followed by the combined Asia, Africa, and Latin America at just over a quarter, Europe a fifth, and the UK the balance. Its clients include 307 of the fortune 500 with names such as Reckitt Benckiser (LSE:RKT), Mondelez International (NASDAQ:MDLZ), easyJet (LSE:EZJ), Lloyds Banking Group (LSE:LLOY), Pernod Ricard SA (EURONEXT:RI), Nestle SA (SIX:NESN) and Nike (NYSE:NKE) on its books.

For investors, lower spending from technology clients and some delays in technology-related projects cannot be overlooked. Costs for businesses generally remain elevated, currency headwinds persist, while the West’s strained relationship with China also warrants consideration.

On the upside, diversity in terms of both product and geographical region is present. Work powered by artificial intelligence, or AI is now being done for some clients, a push to save up to £600 million come its financial year 2025 continues, while a forecast dividend yield in the region of 5% is not to be overlooked. 

On balance, and while risks remain, an analyst consensus estimate of fair value at over £11 per share looks to give room for longer-term hope.  

Positives: 

  • Diversified product and geographical offering
  • Attractive dividend (not guaranteed)

Negatives:

  • Advertising demand is historically cyclical
  • Foreign exchange movements can hinder

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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