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WPP - Navigating tough times

The HL Select UK Growth Shares fund holds a 3.2% weighting in WPP. Steve Clayton, manager of the HL Select funds, comments on their interim results:

'Life is getting tougher in the media world, with WPP experiencing a slowdown in trading in June and July, spread across much of the world and in many different media sectors. That has pushed the shares down 8% in early trading. Their outlook for full year organic revenue growth is trimmed from 2% to somewhere between zero and 1%. Thanks to the weakness of sterling, WPP’s vast international exposure has meant that reported growth is still very strong, with net sales of £6.4bn up 14% in the first half, profits up 15% and the dividend rises by 16%. Underlying growth, stripping out currencies and acquisition impacts, is much duller, with like for like sales down 0.5%."

The group has had a very strong new business winning performance in the first half, with new billings of $4.2bn won, up from £3.0bn last year. This gives the group some momentum going into what would otherwise be a difficult near term outlook. As it is, comparatives for the second half and beyond should get easier from here.

Forecasts will inevitably be trimmed to reflect the new guidance but we don’t expect to see the numbers move by much overall. It is hard going for all players in media-land at the moment; clients are keeping a tight lid on spending and procurement departments are ruthless in the way they push agencies to lower prices. It’s impressive then to see WPP report improved margins, up 0.2% to 13.9, as they use their scale and creative leadership to good effect. The shares are currently trading at a discount to their longer run average rating and the prospective yield of over 4% could be supportive.'