Interactive Investor

ii view: ad giant WPP beefs up annual sales estimates

27th April 2022 15:13

Keith Bowman from interactive investor

Blue-chip corporate customers of this FTSE 100 company are numerous. We assess prospects. 

First-quarter trading update to 31 March

  • Like-for-like adjusted revenue up 9.5%

Chief executive Mark Read said:

“As a result of a strong first quarter, we now expect our growth to be in the range of 5.5% to 6.5%. We remain very mindful of the impact of the broader macroeconomic environment on our business and will respond quickly to any changes as the year progresses."

ii round-up:

Advertising company WPP (LSE:WPP) today reported a strong start to the year, underpinning an increase in its full-year 2022 sales estimate. 

Like-for-like adjusted revenue growth of 9.5% during the quarter beat City estimates of  nearer to 6%, with annual like-for-like revenue growth estimates raised to between 5.5% and 6.5% from a previous forecast of 5%. 

WPP shares rose by more than 3% in UK trading to leave them down around 12% year-to-date. TV advertiser ITV (LSE:ITV) is down by a third over 2022, while US online advertising giants Google owner Alphabet Inc Class A (NASDAQ:GOOGL) and Facebook company Meta Platforms Inc Class A (NASDAQ:FB), are down by 19% and 46% respectively. 

Rising interest rates, a war in Ukraine and a cost-of-living crisis globally have all worried investors regarding possible cuts to corporate advertising budgets. 

WPP pointed towards strong demand across all its businesses and regions, particularly for its services in digital media, ecommerce, data, and marketing technology.

Like-for-like adjusted revenue growth for its top five markets of the US, the UK, Germany, China and India all came in above 8%. New business wins of $1.8 billion (£1.4 billion) during the period included business for both Mars and Sky. 

The FTSE 100 listed firm continues to invest in opportunities for growth driven by the digital transition. First-half results are likely to be announced in early August. 

ii view:

Started in 1971, 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. Group customers include Unilever (LSE:ULVR), Coca-Cola Co (NYSE:KO), AstraZeneca (LSE:AZN), Uber Technologies (NYSE:UBER), and Sainsbury (J) (LSE:SBRY).

For investors, advertising has historically been geared to economic ups and downs. Interest rate rises over coming months will test global economies while some fading of the demand boom seen after the pandemic could still be seen. 

That said, WPP offers diversity in terms of both product and geographical region. Investments in digital transition opportunities are being made, while new app-based or digital-first businesses which do not have traditional business costs like rent, can arguably support growth due to their ability to invest a greater proportion of their income into marketing. In all, and with trading momentum still solid and the shares sat on an estimated future dividend yield of over 3.5%, room for cautious optimism arguably persists.  

Positives: 

  • Diversified product and geographical offering
  • Previously started an £800 million share buyback

Negatives:

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

The average rating of stock market analysts:

Buy

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