Morgan Stanley sees “no early redemption” for blue chip advertising giant WPP group PLC (LON:WPP), with the third quarter looking tough and “an early revival of confidence in the business model” appearing unlikely.
As a result, the US bank has downgraded its rating for WPP to ‘equal-weight’ from ‘overweight’ and cut its target price for the stock to 1,600p from 1,930p. In late morning trading, WPP shares were 1.9%, or 27p lower at 1,396p, the biggest FTSE 100 faller.
READ: £200mln wiped from WPP’s value as revenues stumble on declining client spend
In a note to clients, published today, Morgan Stanley’s analysts noted that the advertising group reported a 1.7% fall in organic net sales in the second quarter, with first half net sales down 0.5%, while margins were flat in constant currency terms.
WPP primarily cited ‘client pressure on costs and spending, particularly amongst packaged goods clients' which represent around 30% of the firm’s revenue.
The analysts said: “We think the industry slowdown is mainly the function of low GDP growth and the FMCG - fast moving consumer goods -(and some other sectors) pressure on marketing expense.”
They added: “There is likely though to be no early resolution to the market’s structural fears over agencies.
“In the meantime Q3 for WPP looks weak and there may be fears over whether it can maintain its medium-term 10-15% EPS growth target.”
The analysts concluded that, “if numbers hold”, WPP looks lowly rated but said “signs of a robust cyclical upturn are required to rebuild confidence”.