WPP has issued first quarter results which show the momentum from last year continuing. Reported net sales were up 8.1%, up 6.7% in constant currency and up 3.2% on a like-for-like basis. All regions experienced growth in the period with North America strongest (LFL net sales up 3.9%) and Western Continental Europe weakest (+2.3% LFL). The shares were 1% lower in early morning trading.
Over 38% of the Group's revenue came from direct, digital and interactive in Q1, up over 1.0 percentage point from the previous year and close to the Group's strategic objective of 40-45% in the next five years. Digital revenue was up over 13% in constant currency and over 8% like-for-like.
WPP completed 26 acquisitions in the first quarter and repurchased 0.3% of the issued share capital. Average net debt rose by £767 million to £3.689 billion.
The group is maintaining its full year guidance for:
- LFL net sales growth of over 3%
- Operating margin improvement of 0.3 margin points at constant currency
WPP is the largest media agency in the world, with 188,000 employees in a group of businesses spanning everything from creative campaigns to media buying and market research.
Advertising is a cyclical industry but at the moment conditions in most of WPP's markets are good. The company has done an excellent job of controlling costs which has seen margins progressively expand over recent years. This has translated into very strong cash flows, enabling organic growth to be supplemented by acquisitions. In recent years, deal-making has been focused on raising exposure to digital media and faster growing nations, with a target for 40-45% of sales to be earned from each of these categories within five years.
Over the last twenty years WPP has grown the dividend at a double-digit compound annual growth rate. Over the long term WPP continues to target earnings per share growth of 10% to 15% per annum delivered through revenue growth, margin expansion, acquisitions and share buy-backs. If they can achieve this, prospects for future dividends ought to be encouraging.
As long as the global economy behaves itself, WPP should be capable of strong growth. The shares trade on a price to earnings ratio (P/E) of 14.9x, slightly above the long run average of c. 12.7x. The gross yield for the coming year is 3.3%, rising to 3.9% by FY18, on current analyst forecasts.
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