Analysts on WPP: 'expected bad, got worse'

Business analysts have generally agreed that WPP's half-year earnings fell below expectations given recent market commentary, but have offered mixed guidance going forward.

Analysts on WPP: 'expected bad, got worse'

Ian Whittaker, media analyst at Liberum, recommended WPP as a buy despite the company’s half-year results being "likely to disappoint". 

WPP’s top-line weakness, Whittaker said, is partly driven by FMCG giants Procter & Gamble and Unilever cutting marketing spend over the last year, a situation which Liberum believes will reverse.

"For instance, recent comments from Unilever suggest that the structural pressures have been over-emphasised," Whittaker said. "We reiterate, particularly for longer-term investors, the current de-ratings offer an excellent buying opportunity. Additionally, WPP is poised to benefit from net new business wins in 2018, with early signs of this already coming through." 

Investec, whose note was headlined "expected bad, got worse", said WPP’s disclosure today was "not a complete surprise" given recent warnings by Dentsu and Interpublic, but reiterated that the company’s like-for-like figures were "poor", with the second quarter below forecast.

The bank added: "Negative sentiment has hit the rating, but full-year growth guidance/downgrades imply further share price pressure. We remain cautious given continuing poor peer agency trading, especially in the US."

UBS said investors would react negatively to WPP’s "weak" organic net sales growth and identified four key risks: slowing economic growth; structural pressures as advertisers reduce media spend in favour of data-driven marketing; cost pressure with inflation in talent costs; and execution risk.

On structural pressures facing WPP and the wider advertising industry, UBS added: "Structural pressures build… [with] consultancies winning a share of brand marketing spend; advertisers directly acquiring media and creative services from media suppliers (e.g., Facebook, Google, Amazon); trust issues leading advertisers to bring agency capabilities in-house, or to use independent agencies."

Meanwhile, Numis said WPP’s earnings per share of 45.4p fell slightly below its upper-end forecast and for 2018 has lowered its WPP net sales forecast for 2018 from +3% to +2%, both on like-for-like and reported basis.

Paul Richards, media analyst at Numis, added: "The group reiterates its margin guidance for 30bp, while we view both the dividend increase (+16% to 22.7p) and progress on buybacks as indicative of long-term confidence in the group's prospects." 

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