WPP have this morning released interim results, which again show all geographies and sectors growing net sales on both a constant currency and like-for-like basis. With profit before tax beating analyst expectations, the shares moved 3% higher this morning.
Highlights (at constant currency rates):
For the group, net sales were £5.6bn, an increase of 8.1%. 4.3% of this growth came from the 36 acquisitions completed in the first half, with 3.8% attributed to improving like-for-likes.
WPP's net sales margin is now 13.7%, up by 0.3ppts, with headline profit before tax up 11.7% to £690m.
The interim dividend of 19.55p is up 22.9%. The payment represents a pay-out ratio of 50%, in line with the group's target.
Share buy-backs in the half of £197m represented 1% of the issued share capital.
Average net debt increased to £4bn, an 18% increase on last year, reflecting the significant net acquisition spend and share repurchases over the last 12 months.
The group's targets for the year are for net sales growth of over 3%, and a 0.3ppt operating margin improvement on a constant currency basis. WPP's longer-term target is for earnings per share growth of 10% to 15% p.a. delivered through greater than industry average revenue and net sales growth, margin expansion, acquisitions and share buy-backs.
WPP is the largest media agency in the world, with over 200,000 employees in a group of businesses spanning everything from creative campaigns to media buying and market research. That global reach of the business has boosted reported revenues as a result of sterling weakness.
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. Should WPP be able to meet its target of earnings per share growth of 10% to 15% per annum, prospects for future dividends ought to be encouraging.
Advertising is a cyclical industry but at the moment conditions in most of WPP's markets are good. 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 15.3x, which is above the long run average of c.12.6x. The gross yield for the coming year is 3%, with more dividend increases expected in the coming years.
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