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WPP - sales still down but guidance unchanged

Nicholas Hyett | 26 April 2019 | A A A
WPP - sales still down but guidance unchanged

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WPP plc Ordinary 10p

Sell: 980.20 | Buy: 980.80 | Change -9.60 (-0.97%)
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Revenue less pass-through costs WPP's preferred measure of underlying sales, declined 0.7% to £2.9bn. Ignoring the effect of exchange rates, sales were down 2.3%.

However, expectations for the full year are unchanged.

The shares were little moved following the announcement.

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Our View

WPP's come a long way since its beginnings as a humble wire-basket maker, unfortunately in recent years, the sprawling media conglomerate's great weight has created aches and pains to match.

The loss of a CEO that led the group for 33 years, always made some underperformance a possibility.US sales continue to sink as major clients walk away, and the group needs to navigate an advertising market that's increasingly dominated by the likes of Facebook and Google.

It's no surprise the new strategy calls for an increased focus on helping partners succeed in marketplaces such as Amazon and Alibaba. That seems sensible, as do plans to slim down the business by merging and disposing of surplus agencies and interests.

The largest business in the firing line is market research company, Kantar. WPP's adamant the sale process is ticking along as expected, but rumours have been swirling that potential buyers are in short supply. For now, investors can only watch this space.

The disposals have clear benefits. Not only will they help reduce the group's substantial debt pile, they should help the new management get a grip of the business. Years of acquisition-led expansion under Martin Sorrell saw WPP sprawl.

We think the turnaround plans make sense, and it's good to see expectations for this year have been maintained. The fact remains though the current challenges are significant. The key North American market is seeing sales slide at a much faster rate than at the end of last year, and goes some way to explaining why the shares trade on just 9 times expected earnings.

The prospective yield is around 6.7%. Assuming buyers can be found for the 'non-core' asset that should at least mean investors are paid to wait and see whether Mark Read £amp; co. can deliver a recovery.

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First quarter trading details - at constant exchange rates

North America, WPP's biggest region, was the weakest performing geography. Revenue less pass-through costs declined 7.3% to £1bn, driven by a poor performance in advertising and health & wellness, following 2018's client losses.

In the UK, like-for-like revenue less pass-through costs was down 0.9%, a slight decline on 2018's full-year performance. Sales were down 1.1%. The challenging trading conditions were partially offset by a strong performance in the media investment management business.

A good performance in the PR division, and slightly better results in the important German market, helped offset challenging conditions elsewhere in Western Europe. Sales nudged up 0.2% to £765m.

The strongest performing region was Rest of World, where revenue less pass-through costs rose 2% to £867m. That was driven by strong growth in media investment management and data investment management.

Net debt fell by 14.6% to £4.2bn, following the group's disposals in the period. WPP said the previously announced sale process of Kantar is progressing well, in line with expectations.

No shares were repurchased in the first quarter of 2019.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.