Ahead of a trading statement from WPP group PLC (LON:WPP) on Thursday, Credit Suisse has lowered its target price for the marketing and advertising conglomerate.
The Swiss bank has lowered its 2018 and 2019 organic growth forecasts to factor in “a string of account losses”, including Kimberly Clark, Ford creative, some Pepsi business, Glaxo, Amex and United Airlines.
READ: WPP loses lead-creative role at Ford Motor Company
Credit Suisse (CS) has cut its 2018 organic growth forecast by one-tenth of a percentage point (10 basis points, or bps) to 0.5% and its 2019 forecast by 80 bps to 0.6%. This compares to consensus forecasts compiled by WPP of 0.4% and 0.7% respectively.
Following the controversial departure of its founder, Sir Martin Sorrell, WPP has been in restructuring mode.
CS has looked at the restructuring by WPP’s big rival Publicis and found that Publicis suffered below industry average growth for at least four years while re-engineering its business; WPP has all of that to look forward to, CS notes.
“We would expect 1) more creative mergers; 2) more offshoring; 3) more property consolidation; 4) trimming of market research and 5) reinvestment in talent,” Credit Suisse said.
With potential restructuring at 3-5% of sales this would lower free cash flow (pre-savings) by 9-14%, CS calculates.
It believes the current valuation likely already reflects potential restructuring and says, “the greater uncertainty lies in growth levels”.
The new price target is 1,200p from 1,320p previously. WPP shares currently trade at 1,041p.
Credit Suisse has a neutral rating on WPP.
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