Is WPP the biggest bargain on the FTSE 100?
Finally, some good news for troubled advertising and public relations multinational WPP(LSE: WPP). After a turbulent year for the FTSE 100 company, whose shares have fallen more than a third, the stock is up 6.66% this morning after an enjoyably upbeat first quarter 2018 trading update.
Sorrell out
But these remain tough times for WPP, as advertisers cut spending and digital disruption squeezes on revenue growth. It also has to adjust to the shock departure of chief executive Martin Sorrell, 73, forced to step down following allegations of personal misconduct and misuse of company assets (which he denies) after more than three decades. Sorrell made WPP what it is today, but maybe the company will benefit from a fresh eye.
Today's Q1 results showed a 4% drop in reported revenue to £3.56bn, largely due to currency headwinds of 6%. At constant currency, revenues rose 2%, or 0.8% like-for-like. Similarly, reported revenue (less pass-through costs) fell 5.1% to £2.95bn, but rose 1%, currency neutral. Constant currency net debt rose by £354m to £5.2bn.
The business
Business is still rolling in, with $1.74bn worth of new billings in the first quarter. Otherwise the results were in line with expectations and 2018 guidance remains unchanged. However, plenty of things at the £15.5bn-business are going to change, with joint chief operating officers Mark Read and Andrew Scott charged with reviewing overall strategy. Analysts have suggested their proposals might include the sale of its less integrated divisions, such as its PR or market research units, trimming the sprawling conglomerate.
WPP retains plenty of strengths, calling itself "the number one media buying and planning business" with "world-class digital brands and strong mutual relationships with technology companies such as Adobe, Amazon, Facebook, Google, IBM, Microsoft and Salesforce", to name but a few of its clients.
Global reach
North America accounts for the largest part of the group at 38.7%. Yet despite relative US economic buoyancy it was the weakest performing region, as advertising, data investment management and healthcare all slipped. WPP performed better in the UK, Europe and emerging markets, underlining the benefits of global diversification.
It's a measure of how gloomy investors have been about the group that they have been so welcoming to a report that forecasts "flat like-for-like revenue and revenue less pass-through costs", with operating margins flat on a constant currency basis.
Bargain price
There was brighter news in a forecast annual headline diluted EPS growth of 5-10% a year, due to revenue growth, margin expansion, acquisitions and share buy-backs. In Q1, investors benefited from buy-backs of £145m, representing 11.5m shares or 0.9% of the issued share capital.
Recent signs of an economic slowdown in the UK and Europe and widespread talk of a recession in 2019, could make life harder for the group. However, non-core disposals could drive interest and shareholder value. A forecast dividend of 5.2%, covered twice, is tempting, especially given today's low valuation of just 9.8 times forecast earnings. Today's positive report could be the start of a new - if uncertain - era. You might consider getting in early.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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