Will next Wednesday’s half year results be a good advert for Martin Sorrell’s WPP?
Looking at the company’s 2017 chart, WPP (LON:WPP) is in a severe need of a rebrand. The first couple of months of the year were OK – the stock very gradually pushed higher, eventually hitting a high of £19.29 on the eve of its early March full year results. Yet it was here, despite some very tasty figures, where WPP’s troubles began.
Though the company posted a 7.2% rise in revenue to a record £14.4 billion, a 12.5% surge in pre-tax profit to £1.89 billion AND a 3.1% increase in like-for-like net sales to £12.4 billion, its outlook for the next fiscal year wasn’t great. CEO Sorrell warned that WPP would only be able to increase revenue and net sales by 2% – down from the previously stated 3% – across 2017 due to global economic uncertainty and the loss of two key clients in Volkswagen (DE:VOWG_p) and AT&T. This news understandably wasn’t welcomed by investors, who sent the stock nearly 10% lower in the space of 48 hours.
From here onwards WPP found itself trapped between £16.50 and £17.50, bouncing between the two until mid-June. In this period the company released another two updates, neither of which did much for its stock price. The first came at the end of April, where WPP revealed that like-for-like net sales rose just 0.8% – and actually fell 1.1% in its key North America region – in the first quarter of the year, while reported revenue jumped 17% thanks to favourable currency movements. The next statement in early June painted a similar picture, with a weak showing in North America somewhat negating the growth seen in the UK and Western Europe.
Things got worse at the start of summer, as the post-general election chaos, and a downgrade by BNP Paribas (PA:BNPP), dragged it to a 13 month low of £15.36 by mid-July. Since then the stock has begun to recover, lifting back towards at current trading price of £15.99 (Spreadex, 17/08/2017). There are warning signs in the sector, however, with WPP suffering a bit of a knock in early August after its Japanese rival Dentu Aegis cut its full year forecasts.
In terms of WPP’s interim results, investors will want to see some sign of life in North America paired with a continuation of the company’s growth in Europe. Analysts are expecting a 1.1% increase in revenue to £6.61 billion, though that state of the company’s like-for-like net sales figures, and any changes to its full year guidance, will likely be the more important metrics.
WPP PLC has a consensus rating of ‘Buy’ with an average target price of £19.34.