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WPP - Q1 sales rise, full year guidance unchanged

First quarter net sales rose 2.9% to £2.8bn, on a like-for-like (LFL) basis.

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First quarter net sales rose 2.9% to £2.8bn, on a like-for-like (LFL) basis. There was growth in all business areas, with Global Integrated Agencies benefitting from a strong performance at GroupM. WPP won $1.5bn of net new business in the period, including from Adobe, Ford and Lloyds Banking Group.

The group said artificial intelligence (AI) "will be fundamental to WPP's business" and "there are many applications of AI today in the work we do for clients".

Net debt as at the end of March was £1.4bn higher than the start of the year, partly reflecting WPP's acquisitions in the quarter.

Full year guidance is unchanged, including net revenue growth of 3-5%. The group also expects capital expenditure of £300m and restructuring costs of around £180m.

The shares fell 2.2% following the announcement.

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Our view

WPP is a media business. Its agencies help companies in over 100 countries, across all areas of the marketing spectrum. With over 100,000 employees, WPP is no small fry. The biggest pillar of the group is its communications businesses. Companies need to promote their brands or products, and that's where WPP comes in. It offers services including analytics, paid advertising campaigns and PR.

This is a very difficult part of the market to operate in when times are tough. But now economic and geopolitical tensions are easing slightly, WPP is thriving. That's partly because of helpful market dynamics, where a rising tide is lifting all ships. But we're impressed by WPP's self-starting rapid turnaround.

Net revenue is pushing ahead nicely, not least thanks to WPP's laser-like focus on boosting its digital marketing offerings. The new company plan involves focusing on faster-growing end markets (like how to help clients succeed online) and technology. Hundreds of millions will be spent over the next few years, most of which will go on new staff, technology and incentives.

Before it can reach a home stretch, it's worth remembering that WPP's agency business is still being nibbled away at, and it's turning to acquisitions to keep growth coming. WPP needs to prove that recent momentum can be harnessed and continued.

The uncertain global economic backdrop shouldn't be ignored either. WPP's more focused structure will help it if conditions sour, but it wouldn't be immune to a sharp global downturn, when marketing budgets have typically got slashed. There are cracks appearing in some of WPP's larger markets and margins are coming under pressure. In the wider market growth in online advertising spend is slowing. We're pleased with the overall direction of travel but it's something to keep in mind.

WPP's shareholder returns have increased lately, with management making the most of knocks to the valuation over the last year through a share buyback programme. With this in mind the recent increase in debt is worthy of note, and increases the risk to future distributions to shareholders, particularly if margin growth comes under further pressure.

We previously said that long-term prosperity rests on a swift, and accurate, execution of the new strategy. We think WPP is moving at a significant pace, reducing, though not eliminating, that worry. The current price to earnings ratio of 9.1 offers the potential for further upside for investors prepared to take a bit more risk but of course there are no guarantees.

WPP Key facts

  • Forward price/earnings ratio (next 12 months): 9.1

  • Ten year average forward price/earnings ratio: 12.0

  • Prospective dividend yield (next 12 months): 4.4%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 27th April 2023