Talk of a bid for WPP PLC (LSE:WPP) PR business makes sense, according to analysts at Citi, and might persuade management given the value it could generate.
Bloomberg and FT both reported that KKR had made a bid for control of FGS Global, the PR arm.
KKR already owns a 30% stake in the business. WPP owns 55% and partners and employees the rest.
“Fully dismantling the holding company would not likely be plan A for the management of WPP, in our view,” said Citi
“This said, the magnitude of the gap between public market and private valuations of the PR business, in particular, suggests there is a potentially fairly significant opportunity for WPP to create value for shareholders without significantly undercutting the longer-term prospects for growth. “
WPP shares are under pressure and with a change of Chair anticipated in the near term, Citi expects more scrutiny of how the group might consider a broader review of its holdings and owned/operated assets “and, on balance, we think this process could reveal considerable ‘hidden value”'.
Buy is WPP’s rating.
That is the opposite of UBS, which rates the shares as a 'sell' ahead of its interims in the first week of August.
“We forecast the Group to deliver -0.8% organic declines in the second quarter vs. company-compiled consensus (median) of -0.3%.
“Our forecast is driven by the following factors: Smaller headwinds from technology client spending cuts; a more challenging prior year comp in China especially given account losses and continued pressure across specialist agencies following softness in project-based spend, despite a slight easing of prior year comps."
Interim margins are also expected to drop below consensus at 11.2% though full-year forecasts remain broadly unchanged with zero growth likely.
“We cut FY24-25E EPS by -1% to reflect further FX headwinds and our revised FY24E EPS forecast is c4% below consensus."
UBS's 12-month price target is 740p.