WPP PLC (LSE:WPP) may have spent years being written off as an advertising dinosaur, but Berenberg reckons investors have become too gloomy.
Shares in the FTSE 250 group jumped 5.5% to 276.5p after the German bank has initiated coverage of the UK giant with a 'buy' rating, arguing that a sharp de-rating across the sector has created an opportunity for investors willing to look beyond concerns about artificial intelligence and slowing growth.
WPP shares have fallen 72% over the past five years as the group lost ground to rivals, endured repeated restructuring programmes and struggled to convince investors it could keep pace with changes in digital advertising.
Berenberg said that narrative had gone too far, also giving 'buy' ratings to French pair Publicis and Havas.
The bank argued that advertising agencies are "adapting rather than fading away – becoming increasingly important strategic partners and helping clients navigate a more complex and fragmented marketing landscape".
For WPP, the challenge is execution. Berenberg said a new management team has the chance to complete the simplification of the business and restore growth after a prolonged period of declining sales and pressured profitability.
The broker set a price target of 405p, implying upside of more than 50% from current levels.
It was equally positive on rivals Publicis and Havas, with the former praised for its early shift towards a data- and AI-led model, while the latter was described as an overlooked challenger whose valuation fails to reflect stronger growth and profitability than some larger peers.
Berenberg said agencies are not being disrupted out of existence, but are being priced as if they are.
