WPP PLC (LON:WPP) saw its shares thrown out with the bathwater today after the global advertising giant reported a slowdown in sales growth at the start of 2017 impacted by the loss of some major accounts and global economic uncertainty.
In late afternoon trading, WPP shares topped the FTSE 100 fallers list, dropping almost 8.5%, or 163p to 1,748p.
Mike van Dulken, head of research at Accendo Markets, pointed out that investors have baulked “at a nasty combo of Q4 slowdown and disappointing outlook.”
He said: “Q4 revenue growth at its slowest since Q3’12 (2.1% year-on-year, organic) is blamed on a tough comparable period and both US and UK clients spending less; understandable, given the extent of political uncertainty on both sides of the pond and loss of major accounts like AT&T and VW.”
The commentator added: “Real concern, however, lies in such a slow start to the year (January 1.2%) and management guiding to slower revenue growth for 2017 as a whole (2% vs 3.1% in 2016 and 3% consensus).
“This suggests a worrying continuation of what it terms a ‘tepid’ macro environment, clients ‘grinding it out in a highly competitive game’ and a cooling of positive tailwinds. Not really what investors want to hear when shares are just shy of all-time highs.”
Van Dulken concluded: “All eyes thus on Donald and Theresa advertising much more about stimulus policy and a not too disruptive Brexit, to reinvigorate business optimism and spending.”
Pulling the levers …
WPP - run by high-profile businessman Martin Sorrell - saw its 2016 profits beat market expectations, with billings, revenues and net sales up sharply, reflecting underlying growth, all boosted by the post-Brexit vote weakness of sterling.
Steve Clayton, manager of Hargreaves Lansdown’s £500m HL Select funds said while that is all “well and good” the market’s focus is on WPP’s “downbeat outlook for the coming year.”
He said: “WPP is a hugely successful business, but it is feeling the effect of slower growth in the UK and USA, where clients are spending less.”
The fund manager added: “When you are the size of WPP, with revenues of £14bn a year, you can’t but notice the broader state of the economy.
“But WPP are pulling the levers that they can keeping costs under control and margins edging forward.
“Even in the financial crisis, WPP’s earnings profits only dipped 10%. Not many companies have that ability to cope under pressure and WPP remains one of our core holdings.”
The HL Select UK Shares fund has a 3.69% holding in WPP.
Strength and quality …
Shore Capital analyst Roddy Davidson also remained bullish on the world's largest advertising group.
In a note to clients, he said: “We are pleased by the better than expected headline performance and positive momentum (both trading and operational) described in this morning’s results announcement and, despite a degree of caution around on-going global economic uncertainty, we remain positive on WPP’s prospects for both the current year (following a solid start) and beyond.
“Specifically, we believe the strength and quality of its operations and brands, its broad international footprint, record of innovation and industry-leading new business wins, focus on cost control, and its overweight exposure versus peers to digital and less well-developed regions means that it is well placed to tap into solid medium-term growth in global advertising spend.”