Interactive Investor

Shares round-up: WPP, Flutter Entertainment, Hays

27th August 2020 14:54

Graeme Evans from interactive investor

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Investors relieved by dividend payments at advertising giant, while Flutter and Hays still suspend them.

A return to dividend payments by WPP (LSE:WPP) helped to offset a £2.6 billion loss today as the marketing and advertising giant surged to the top of the FTSE 100 risers board.

The 10p a share interim dividend came as some relief for investors after the earlier suspension of the 37.3p award in March for 2019 trading, which WPP confirmed today had been permanently cancelled in order preserve about £450 million of capital.

A share buyback funded from the recent £2.4 billion sale of a stake in analytics business Kantar remains on hold while WPP waits for signs that trading conditions have stabilised.

Today's massive half-year loss came after WPP took £2.7 billion of impairments relating to acquisitions whose carrying values have been reassessed in the wake of Covid-19. 

First-half revenues were 12.3% lower at £5.58 billion after activity slumped in the second quarter, with the global advertising economy set to shrink 11.8% this year. However, there have been positive aspects for WPP as lockdowns have accelerated trends towards digital media.

Chief executive Mark Read said: “We are working with our clients to help them get back to business, adapt their marketing strategies at speed and reshape their operations for a new world.

“Brands are seeing increases in online sales of 100% and more, and we are supporting eight of our top ten clients on ecommerce strategies.”

His optimism, coupled with the interim dividend and the financial headroom offered by £4.7 billion of liquidity thanks to the Kantar transaction, ensured shares rose 5% to 653p.

WPP was joined on the risers board by Flutter Entertainment (LSE:FLTR), whose shares lifted 2% after the Paddy Power and Betfair firm reported a good sports betting performance so far in the second half of the year, helped by condensed football fixtures and favourable sports results.

The group's first half financial performance also exceeded expectations, with a major uplift in player numbers for its poker and casino business during the lockdown helping to offset the impact of Covid-19 disruption on its traditional sports and retail operations.

Flutter, which recently added Sky Bet, Sky Vegas and PokerStars to its stable following the acquisition of Stars Group, still reported an 81% drop in earnings per share to 18.1p for the first half.

Uncertainty over the trading outlook means Flutter has not paid a dividend, with the company further focused on reducing a current debt level of £2.9 billion.

Recruitment firm Hays (LSE:HAS) is also keeping its dividend suspended until there is more evidence that trading conditions have improved. Annual results today showed a 63% fall in pre-tax profits to £86.3 million, including a 14% decline in net fees in the UK and Ireland. Cash generated by its operations was only 6% lower at £247.4 million, however.

Hays said: “Given macroeconomic uncertainty caused by the pandemic, and the fact we traded only at a broadly breakeven level of profitability in Q4, the board is not proposing a final dividend for the 2020 financial year.

“However, our business model remains highly cash generative and we remain acutely aware of the importance of dividends to shareholders and will look to return to paying dividends as soon as is appropriate.”

Hays has a strong record of returning capital, with £374 million in core and special dividends paid between 2017 and 2019. When conditions improve, Hays said it will consider how best to reinstate its capital returns policy.

While shares fell 2% to 115.1p, analysts at Jefferies said they were encouraged by the slightly more positive tone compared with July's trading update, particularly in relation to the Australia/New Zealand region and Europe, the Middle East and Africa.

They added:

“With Hays sustaining investment to gain market share, our 2021/22 underlying earnings estimates remain unchanged but earnings per share falls by 5-10% due to a temporarily higher tax rate.”

The bank has a price target of 147p, adding that the long-term risk/reward remains favourable.

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.

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