ii view: WPP still bullish on client demand

Winning new sales, reducing debt and with a forecast dividend yield of almost 3%. Buy, sell, or hold?

Third quarter to 30 September 2021

• Adjusted like-for-like revenue up 15.7% to £2.64 billion year-over-year
• Adjusted like-for-like revenue up 6.9% compared to Q3 2019
• Net debt of £1.6 billion, down £1 billion year-over-year

Guidance:

• Expects full-year like-for-like revenue growth (minus pass-through costs growth) of 11.5% to 12% this year, up from a previous 9% to 10%

Chief executive Mark Read said:

"Our very strong performance goes well beyond a cyclical recovery, with like-for-like growth over 2019 at 6.9% in the quarter. Clients across all sectors and geographies are making significant investments in marketing, particularly in digital media and ecommerce services. We are now above 2019 levels in all of our business lines, and with the actions we have taken over the last three years, we are even better positioned for growth.

“With strong client demand, a clear strategic direction and a strong balance sheet, we are well positioned to continue our momentum into 2022 and beyond."

ii round-up:

Advertising agency WPP (LSE: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. 

It 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. 

For a round-up of these latest results, please click here. 

ii view:

Since its change of strategy in late 2018, WPP has sold more than 60 businesses and investments, raising over £3.5 billion. Over the financial year 2020, three-quarters of its sales come from its global integrated agencies, including media buying, planning, creative and production. As for the balance, just under a tenth comes from public relations, with around 15% from specialist agencies. WPP customers include Unilever (LSE:ULVR), HSBC (LSE:HSBA), Intel (NASDAQ:INTC), Uber (NYSE:UBER), L'Oréal and Sainsbury (LSE:SBRY).

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For investors, advertising has historically been geared to economic ups and downs. Some broker concerns persist that recent sales strength resulting from the pandemic will fade. Changing trends for clients such as the auto industry could also result in changes of supplier including advertising agencies. 

On the upside, account wins of $7.6 billion (£5.55 billion) in net new billings during the full year 2020 and $4.8 billion (£3.5 billion) year-to-date cannot be overlooked. Reduced debt and a previous rebasing of the dividend provide increased financial flexibility, while share buybacks now inject some share price support. A now forecast future dividend yield of close to 3% is also not insignificant in the current low interest rate era. For now, and with the consensus analyst estimate of fair value standing at £11.50 per share, support for this media giant appears to remain well founded. 

Positives: 

• Ongoing share buyback programme
• Planned annual cost savings of £600 million through to 2025

Negatives:

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

The average rating of stock market analysts:

Buy