Things aren’t getting any worse at WPP PLC (LON:WPP), according to Barclays, and the bank reckons that’s a good enough reason to upgrade their view of the ad giant.
Last week, the FTSE 100 group reported a 2.8% fall in first-quarter like-for-like sales, mainly driven by the loss of swathes of business from car, pharma and consumer goods clients.
READ: ‘Significant’ US client losses hit WPP’s first-quarter sales
But Barclays’ analysts have moved WPP up to ‘overweight’ – a ‘buy’ in old money – from ‘equal weight’ previously, while they also hiked their price by 10% to 1,100p.
They said there were four main reasons for their more bullish outlook: organic growth not getting worse, the prospect of Kantar’s disposal, “some confidence” in management’s turnaround ability, and valuation.
“Firstly, Q1 net sales were very much in line (granted at a lowly -2.8% level) and management reiterated FY19 targets with more confidence, we believe (-1.5% to -2.0% organic, we have -1.8%),” read a note to clients.
“Q2 organic should be similar to Q1 before better numbers in H2. Q2 can still be seen positively, however, if all the other agencies report decent numbers as expected.
Shares look ‘very cheap’
“Secondly, selling Kantar and starting a buyback is another catalyst for WPP, in our view. We believe there is still scepticism in the market that WPP can sell the business at an acceptable price resulting in an eps neutral transaction.”
They added: “Thirdly, management turnaround strategy looks sensible (simpler structure, lower margins to invest in talent, focus on creativity and technology). The multi-year time frame to get back to growth also appears sensible, and consensus at 0.7% organic next year is not aggressive.”
As for the fourth and final reason for the upgrade, the chin scratchers claimed the shares are “very cheap”, close to an all-time low on a price-earnings basis.
WPP shares rose 2.2% to 976.4p