ii view: ad agency WPP stays confident

Shares for this FTSE 100 company are down by a third year-to-date and now offer an estimated dividend yield of around 5%. We assess prospects. 

Third-quarter trading update to 30 September

• Adjusted like-for-like revenue growth up 3.8% year-over-year
• £692 million of share buybacks year-to-date, total of £800 million to be completed in 2022

Guidance:

• Expects full-year 2022 adjusted like-for-like revenue growth of between 6.5% to 7%, up from 6% to 7%

Chief executive Mark Read said:

“WPP continues to show strong momentum, reflecting broad-based growth across our agencies, markets and industry sectors and the investment by our clients in marketing, e-commerce and digital transformation. Our performance on a three-year basis has continued to improve each quarter during 2022.

“We enter the last quarter of the year with confidence, based on the leading competitive position of our businesses, our client momentum and the knowledge that the actions we have taken to strengthen WPP leave us well placed to support our clients in navigating the economic uncertainties ahead.”

ii round-up:

Advertising giant WPP (LSE:WPP) today reported adjusted revenue growth largely in line with City forecasts helping it to raise its full-year sales guidance. 

• Read about how to: Open a Trading Account | How to start Trading Stocks | Top UK shares

Third quarter like-for-like revenues less pass-through costs rose 3.8% with full-year guidance for the sales measure upped to growth of between 6.5% to 7% from a previous 6% to 7%. 

WPP shares retreated by around 3% in early UK trading having come down by close to a third year-to-date. Shares for TV advertiser ITV (LSE:ITV) are down by almost 40% during 2022. Shares for Google owner Alphabet (NASDAQ:GOOGL) and former Facebook company Meta Platforms (NASDAQ:META) are down by 27% and 59% respectively. 

A consumer cost-of-living crisis, rising interest rates globally, continued pandemic lockdowns in China, and a war in Ukraine all continue to worry investors regarding possible cuts to corporate advertising budgets.

Net new business wins at WPP came in at $1.7 billion giving a year-to-date total of $5.1 billion. Full-year guidance regarding its profit margin was shaved to between 0.3% and 0.5% from a previous gain of 0.5%. 

The FTSE 100 company remains on track with a £300 million cost-saving programme. In September, it purchased JeffreyGroup, an independent corporate communications, public affairs, and marketing consulting firm in Latin America for an undisclosed sum. 

Full-year results are likely to be announced in February. 

ii view:

Originally a maker of wire baskets and teapots called Wire and Plastic Products, WPP Group today employs more than 100,000 people. It operates through the three divisions of Global Integrated Agencies, Public Relations and Specialist Agencies in over 100 countries. The US generates its biggest slug of sales at around a third, followed by the combined Asia, Africa and Latin America at just under 30%, and Europe at just over a fifth. The UK accounts for almost 15%. Group customers include Nestle SA (SIX:NESN), Samsung Electronics Co Ltd GDR (LSE:SMSN), Coca-Cola Co (NYSE:KO), AstraZeneca (LSE:AZN), Uber Technologies Inc (NYSE:UBER), and Sainsbury (J) (LSE:SBRY).

• 10 beaten down cyclical shares that could lead a future recovery
• How to invest for difficult times
• Where to invest in Q4 2022? Four experts have their say

For investors, a highly uncertain economic outlook for its corporate customers is tough to ignore. Advertising has historically been geared to economic ups and downs; business costs generally are rising, while its China business is being hindered by ongoing pandemic lockdowns. On the upside, diversity in terms of both product and geographical region is enjoyed. Bolt-on acquisitions are being made, while an estimated dividend yield of close to 5% is far from derisory. 

On balance, and while some caution looks sensible, long-term fans of this transforming advertising giant are likely to stay patient. 

Positives: 

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

Negatives:

• Media demand is historically cyclical
• Foreign exchange movements can hinder growth

The average rating of stock market analysts:

Strong hold