ii view: WPP returns to sales growth

WPP rivals now include Google and Facebook, but its recovery plan has started well. 

Third-quarter trading update

• Like-for-like revenue less pass-through costs up 0.5%
• Like-for-like sales up 1.9%
• Full-year guidance reiterated

Chief executive Mark Read said:

"WPP's performance in the third quarter is another important step in the strategy we outlined in December 2018 to return the company to sustainable growth in line with our peers in 2021. 

Our growth in Q3 is encouraging but we are focused on delivering these longer-term goals and know there will be twists and turns along the way. Our guidance for 2019 remains unchanged.”

ii round-up:

Advertising and data research company WPP (LSE:WPP) reported a return to sales growth in this third-quarter trading statement. 

Like-for-like revenue minus pass-through costs rose by 0.5%, the first quarter of growth since the second quarter of 2018, and a marked improvement from the 2.5% fall seen in the first half.

All regions showed improvement compared with the first half. Major client wins in the quarter included Mondelez International (NASDAQ:MDLZ) and eBay (NASDAQ:EBAY), while longstanding relationships with clients such as the US Marine Corps and Centrica (LSE:CNA) were retained and extended. 

Management action remained focused on building new leadership in many of its companies, reducing but strengthening its agency brands and enhancing creativity where possible using the power of technology.

Full-year guidance stayed unchanged with like-for-like revenue less pass-through costs expected to fall between 1.5% and 2.0%. 

The shares rose over 7% in early UK afternoon trading. 

ii view:

The loss of its founder and chief executive in April 2018 marked a highly difficult year in the company's history. Significant client losses, particularly in the US and including customers in the automotive and pharmaceutical sectors, further deepened its struggles.

A change in leadership is now showing signs of generating improvement. Steps to simplify and reposition the company are being taken, with the part sale of its Kantar business now cleared by shareholders. 

For investors, a forward price/earnings (PE) ratio of under 10 and below its 10-year average attempts to remind investors of its battle with Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB). A forward dividend yield of over 6% offers investors some compensation for their patience. New management has made an encouraging start, although rivals are unlikely to be standing still. 

Positives: 

• A three-year strategy to return it to growth
• A new chief executive and new management across many parts of the company
• A reduction in group debt is underway

Negatives:

• Google and Facebook have built significant advertising businesses
• Earnings per share forecasts pointing lower
• The departed chief executive built the company and is a hard act to follow

The average rating of stock market analysts:

Buy