Interactive Investor

ii view: WPP shares slump but ad giant still confident

Upping the dividend and launching an £800 million share buyback. We assess prospects.

24th February 2022 15:47

Keith Bowman from interactive investor

Upping the dividend and launching an £800 million share buyback. We assess prospects.

Full-year results to 31 December 2021

  • Revenue up 6.7% to £12.8 billion 
  • Operating profit up 18.5% to £1.49 billion
  • Final dividend of 18.7p per share
  • Total dividend for the year up 30% to 31.2p per share
  • Average adjusted net debt of £1.6 billion, down from £2.3 billion in 2020

Chief executive Mark Read said:

"It has been an outstanding year for WPP. Our top-line growth has resulted in our fastest organic growth for over 20 years. As a result, we are two years ahead of our plan, hitting our 2023 revenue target in 2021.
  
"We look forward to 2022 with confidence. We are guiding to strong top-line growth, improving profitability and continued investment in our people and services."

ii round-up:

Advertising company WPP (LSE:WPP) summarised 2021 as ‘an outstanding year’ as it reported like-for-like revenue growth of 10.8% during the fourth and final quarter. 

Operating profit for the year rose by nearly a fifth to £1.49 billion as demand for services in areas such as digital marketing and media proved strong. Accompanying management guidance pointed to expectations for like-for-like revenue growth of around 5% over 2022, towards the upper end of City forecasts. 

WPP gained in initial UK trading then fell into losses for the session as broader concerns for developments in the Ukraine gripped markets globally. Shares for fellow advertising related company ITV (LSE:ITV) fell by close to 6%, whiles airline easyJet (LSE:EZJ), which operates flights to Russia and Eastern Europe, fell by around 8%. 

WPP clients include 325 of the Fortune Global 500, all 30 of the Dow Jones 30, 62 of the Nasdaq 100 and 61 of the FTSE 100 companies. 

The explosion in ecommerce given the backdrop of the pandemic had helped drive growth in digital media over the year. New, app-based or digital-first businesses, without more traditional business costs like rent had also supported growth due to their ability to invest a greater proportion of their income into marketing.

On a geographical basis, the UK, the US and China had remained its biggest contributors to growth in advertising spend. 

By media type, TV had enjoyed a strong year, while audio had also seen growth reinforced by podcasting. Cinema advertising had proved slow to recover, while print was the only medium to decline, reflecting trends in circulation. 

The buoyant performance over the year fed into a 30% gain in the overall dividend payment to 31.2p per share. Shareholder returns now included a proposed £800 million share buyback programme over 2022, of which £129 million has already been executed.

ii view:

WPP operates in over 100 countries, employing more than 100,000 people with business conducted through the three divisions of Global Integrated Agencies, Public Relations and Specialist Agencies. Since its change of strategy in late 2018, it has sold more than 60 businesses and investments, raising over £3.5 billion. Group customers include Unilever (LSE:ULVR), Coca-Cola Co (NYSE:KO), AstraZeneca (LSE:AZN), Uber (NYSE:UBER), and Sainsbury's (LSE:SBRY).

For investors, advertising has historically been geared to economic ups and downs. An expected series of interest rate rises over coming months are set to test economies worldwide, while some fading of growth from the pandemic push could be seen. 

On the upside, WPP’s strengths in digital media continue to be valued by its customers. Diversity in both product and geographical terms remains, with reduced debt now providing it with increased financial flexibility and the ability to launch a share buyback offering. In all, and with trading momentum ongoing and the shares sat on an historic dividend yield of close to 3%, WPP appears worthy of long-term investor support. 

Positives: 

  • Diversified product and geographical offering
  • Continuing to pursue cost savings

Negatives:

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

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.