"Will WPP ever grow again?" UBS pondered this as it reiterated a 'sell' recommendation on the advertising and marketing giant after mulling a weak set of results last week and a 25% decline in the shares so far this year.
The shares are now "no longer expensive", but the Swiss bank does not think operating performance is likely to improve "without a change in strategy or asset mix", slashing its 12-month share price target to 590p from 720p.
Cash delivery will continue to be an issue, the analysts felt, forecasting free cash flow falling to circa £640 million in 2025 that implies a 10% 2025 free cash flow yield versys rival Publicis on 9%.
"We do not think this mild discount to Publicis makes sense," UBS added, with the Paris-headquartered rival expected to have delivered a 5.7% organic net sales compound annual growth rate over the past four years.
Catalysts suggested by the analysts for further potential share price underperformance include a "weak Q1 below the bottom end" of the 2025 guidance range and the potential for additional investment to improve top-line performance.
There is also the "potential" for WPP to lose the Mars advertising account, following the review announced in November and "could happen" in the first half of the year.
If WPP retains the account, this offers a risk to the UBS thesis if it enables the group to return to growth in the second half of the year.
Even so, creative agencies (42% of group sales) have been under pressure, the analysts noted, declining in seven of the last eight quarters, "and are likely to decline throughout 2025 as well" and could also come under further pressure from competition from challengers, generative AI and any cuts in ad spend.
"Even if GroupM (40% of sales) can start holding its own in account reviews and return to mid single digit growth (by no means guaranteed), this would only contribute +2ppts to growth", and be wiped out if creative agencies continue to decline at 3%.
UBS cut its price target to reflect medium term earnings cuts