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WPP - organic growth and profits return

Net revenue rose 12.1% to £10.4bn on a like-for-like (LFL) basis, representing the group's fastest organic growth...

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Net revenue rose 12.1% to £10.4bn on a like-for-like (LFL) basis, representing the group's fastest organic growth in two decades. Operating profit reached £1.2bn, up from a loss of £2.3bn.

The group hit its 2023 revenue target two years ahead of plan. Looking ahead to the new financial year, WPP expects LFL net revenue growth of 5%.

A final dividend of 18.7p was announced.

The shares fell 7.4% following the announcement.

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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.

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 are benefiting from a global glut of corporate wallet-loosening.

Net revenue has come on leaps and bounds, 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 focussing 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.

To see all business areas ahead of pre-pandemic levels is not only impressive, but a genuine relief. There was a moment when we questioned if WPP would be able to re-ignite its mojo after some lacklustre trading even before the crisis.

The other bit of good news is that the balance sheet is in much better health than before the crisis. That provides some level of shelter while the group continues with its strategic pivot. WPP feels confident enough to continue returning some of this good fortune to shareholders.

But 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.

There's little to argue with when it comes to WPP's progress. 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 price to earnings ratio of 13.2 doesn't appear demanding - but keep in mind the work isn't over yet, so there could be ups and downs. That's especially true in today's uncertain climate.

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WPP Key facts

  • Price/earnings ratio: 13.2

  • Ten year average Price/earnings ratio: 12.2

  • Prospective dividend yield (next 12 months): 3.0%

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.

Full year results

WPP has been boosted by favourable advertising market conditions. It said pent-up saving increased consumption, as there was a stronger-than-expected economic recovery. There has been especially strong demand for digital advertising. Global ad spending rose 22.5% in 2021, ahead of predictions for 12.3%.

In North America, LFL net revenue rose 9.7% to £3.8bn, and rose over 5% on a pre-pandemic basis. There was a strong performance across the USA thanks to GroupM, VMLY&R and Hogarth.

It was similar in the UK, where net LFL rose 15% to £1.4bn. Western Continental Europe LFL revenue was up 14.5% at £2.2bn, while the remaining regions were also up double digits.

From a business perspective, all agency types did well. Global Integrated Agencies, which includes GroupM and is the biggest division, saw operating profit rise to £1.2bn from £1.1bn.

Free cash flow was broadly flat at £1.3bn, while average underlying net debt for the year was £1.6bn, down from £2.3bn.

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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: 24th February 2022