Positive PR for WPP as rally continues

by Richard Hunter from interactive investor |

Advertising and PR giant WPP is showing signs of momentum as it looks to return to former glories.

WPP (LSE:WPP) has been under pressure on all fronts recently and it is something of a sign of the times that the shares should react so positively to the news that sales have fallen less than expected.
 
That being said, there is clearly progress being made on reducing what had become something of a sprawling empire. Forty-four disposals have been made over the last 15 months, such as the sale of 60% of WPP's stake in Kantar, which will enable a pay down of debt to the tune of $1.9 billion and the return of an additional $1.2 billion to shareholders. 

These disposals, whilst undoubtedly a distraction, nonetheless allow the focus on growth to be directed to a more manageable company. Within the update, there has also been some progress in the group's key US and UK markets, and revenues improved for the period, partly driven by a stronger second quarter.

Net new billings of nearly $3 billion for the half-year reveal proof that the company can still compete with the best and a number of high-profile clients certainly help to cement the company's reputation. Quite apart from any disposal proceeds coming the way of shareholders, the current dividend yield of 6.6%, which is well covered, remains a particular attraction of the stock.
 
However, the transformation is far from over and in executing the strategy there have been some casualties, such as the share price, which has fallen 26% over the last year, as compared to a 6% dip for the wider FTSE 100.

Specifically within this update, overall billings are slightly down, operating margin has slipped and the pre-tax profit figure, previously boosted by a disposal, dropped 44%. The fact that administration and restructuring costs have been and will be in evidence as the strategy unfolds will continue to be a drag on profits.

Meanwhile, net debt remains elevated at over £4 billion and if there is one certainty in the sector, it is that the competition will not wait while WPP gets its own house in order. Quite apart from the emergence of advertising competition from the likes of Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB), traditional players are also looking to hone their businesses in the increasingly digital age.
 
The positive reaction continues some of the momentum of the last six months, where WPP shares had seen a 14% bounce prior to today. Whereas the company may have lost the title of the market darling it had for some considerable time, it has taken swift action in an effort to return to former glories. Some supporters of the stock clearly remain, as evidenced by the market consensus, which still stands at a buy.

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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.

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