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WPP - full year guidance raised

WPP's underlying revenue was up 3.8% in the third quarter, on a like-for-like (LFL) basis, to £3.6bn.

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WPP's underlying revenue was up 3.8% in the third quarter, on a like-for-like (LFL) basis, to £3.6bn. That's 10.9% up against pre-pandemic levels, and an improvement on the first and second quarters.

There was a mixed performance in different regions. Germany and China both fell sharply, but the US and UK were both up over 4%.

In the year-to-date WPP has won net new business of $5.1bn, up 10.9% with significant contributions from a range of new and existing blue-chip customers.

Net debt (excluding lease liabilities) more than doubled year on year to £3.5bn. WPP has completed £692m of its share buyback so far this year and expects this to reach £800m by the end of the year.

WPP now expect full year underlying revenue to grow between 6.5% and 7.0%, vs previous guidance of 6.0% to 7.0%. It's also nudged down the expected improvement in operating margin, from 0.5 percentage points to a range of 0.3 to 0.5 percentage points, which WPP puts down to investments in people and technology.

The shares were down 3.6% in early trading.

View the latest WPP share price and how to deal

Our View

WPP is a media powerhouse. Its scale across advertising and wider marketing agencies cannot be overstated. But sometimes giants get tired, and that's how we viewed WPP. Until recently.

We believe WPP has turned a corner. This has happened faster, and more aggressively than we'd predicted. After a year when above-the-line marketing and advertising spend turned off like a tap, WPP and its huge global agencies benefited from a surge in advertising spend. Despite the onset of significant economic headwinds, the level of new business continues to be impressive.

Net revenue is pushing ahead nicely, not least thanks to WPP's laser-like focus on boosting its digital marketing offerings. This is where the pandemic might have helped with the long-term picture. It forced the group to step up streamlining efforts and refocus itself. The new 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. It all sounds like the right plan, because Covid has only accelerated the shift to digital marketing. We're genuinely impressed with momentum so far.

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 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, but global brands such as Coca-Cola who WPP won a major pitch from last year are still investing in marketing.

WPP increased its first half dividend and continues to buy back shares. 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 7.6 doesn't appear demanding, but also reflects concerns about the near-term outlook for the sector.

WPP Key facts

  • Forward price/earnings ratio (next 12 months): 7.6

  • Ten year average forward price/earnings ratio: 12.8

  • Prospective dividend yield (next 12 months): 5.1%

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
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 26th October 2022