ii view: ad agency WPP still full of confidence

Hiking the dividend by more than a quarter and with clients including Tesco and Danone. Buy, sell, or hold?

Fourth-quarter and full-year results to 31 December

• Adjusted like-for-like fourth quarter revenue up 6.4% year-over-year
• Full-year pre-tax profit up 22% to £1.16 billion
• Final dividend up 31% to 24.4p per share
• Total 2022 up 26% to 39.4p

Guidance:

• Expects full-year 2023 adjusted like-for-like revenue growth of between 3% to 5%

Chief executive Mark Read said:

"We enter 2023 in a strong financial position with good momentum from new business and the many opportunities ahead of us. While there will no doubt be challenges, the continued need for major companies to build brands, sell products, reinvent and transform their business, understand their data, invest in technology and exploit the potential of AI remains, as does their need for modern partners who can help them navigate this new world."

ii round-up:

Advertising giant WPP (LSE:WPP) today detailed growth in both sales and profits as its customers continued to spend on marketing despite a challenging economic backdrop. 

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Fourth quarter adjusted like-for-like sales up 6.4% year-over-year helped push annual pre-tax profit up 22% in 2022 to £1.16 billion. That underpinned an increase in the total dividend to 39.4p per share from 31.2p the year before. Adjusted like-for-like sales for 2023 are expected to rise by 3% to 5%, potentially ahead of competitor forecasts at 2% to 5%. Profit margin should improve to around 15% from 14.8%.  

WPP shares rose by more than 3% in UK trading having come into this latest update already up by around a fifth year-to-date. TV advertiser ITV (LSE:ITV) has risen by more than 10% year-to-date, while former Facebook and online ad provider Meta Platforms Inc Class A (NASDAQ:META) is up by more than 40% in 2023 so far. 

New business wins for WPP totalled $5.9 billion in 2022, with new business from Danone SA (EURONEXT:BN), Nationwide and Verizon Communications Inc (NYSE:VZ) in the US. Customer retentions included Sony Playstation, Tesco (LSE:TSCO) and Mars Wrigley. 

On a sector basis, continued momentum was seen from clients in technology, healthcare & pharma and consumer packaged goods sectors, which combined, accounted for just over half of its adjusted revenues for its designated clients.

Geographically, the company flagged healthy growth in most major markets, but with China suffering lower ad spend given reduced consumer activity under its now lifted pandemic restrictions. 

Broker UBS reiterated its ‘buy’ stance following the results. A first-quarter trading update is scheduled for April. 

ii view:

Originally a maker of wire baskets and teapots called Wire and Plastic Products, WPP Group today employs over 100,000 people. It operates through the three divisions of Global Integrated Agencies, Public Relations, and Specialist Agencies in over 100 countries. 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. 

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For investors, concerns that persistent inflation will require further interest rate rises, pushing economies into recession, should not be ignored. Costs for businesses generally remain elevated, while the west’s increasingly strained relationship with China also warrants consideration. 

More favourably, diversity in terms of both product and geographical region is enjoyed. A management improvement programme continues, bolt-on acquisitions are still being made, while a forecast dividend yield in the region of 4% is attractive. 

For now, and while the share price has already  begun to factor in good news, long-term fans of this global ad giant are likely to stay put. 

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