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WPP - upgrades full year guidance

First quarter net revenue rose 9.5% on a like-for-like (LFL) basis, to £2.6bn.

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First quarter net revenue rose 9.5% on a like-for-like (LFL) basis, to £2.6bn. That reflects growth in all business areas and geographies, with continued strong demand for digital media, ecommerce and data and marketing technology.

Full year LFL net revenue is now expected to rise 5.5-6.5%, up from previous expectations of 5%.

WPP has reached an agreement to divest its Russian businesses, in response to the Ukraine crisis.

WPP shares were unmoved following the announcement.

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 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.

The uncertain global economic backdrop shouldn't be ignored either. WPP's more focussed 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'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 current price to earnings ratio of 10.7 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.

WPP Key facts

  • Price/earnings ratio: 10.7

  • Ten year average Price/earnings ratio: 12.2

  • Prospective dividend yield (next 12 months): 3.7%

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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First quarter trading statement (figures are on a like-for-like basis)

The group highlighted that new business performance had been "excellent" in the quarter, including bringing Coca Cola on as a new client. Recently WPP has also launched Everymile, which is "a new digital commerce managed service that will offer brands a fully outsourced direct-to-consumer (DTC) ecommerce solution".

North America, the group's biggest region, saw net revenue rise 8.7% to $1.0bn. Growth in the US was driven by GroupM - WPP's media investment business. Net revenue growth was above 8% in the UK and Western Continental Europe, which together make up a third of total group revenue. Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, net revenue rose almost 12% to $700m.

The group said performance was "well ahead" of expectations in the first quarter, and client demand has remained strong heading into Q2. However, WPP also remains mindful of the uncertain global economic backdrop.

For the full year, capital expenditure is expected to be £350 -£400m. There will be "around" £800m of share buybacks in 2022, just under half of which was completed in the first quarter.

Net debt as at 31 March 2022 was £2.6bn, compared to £0.9bn at the start of the year. The increase reflects working capital movements and the share repurchases.

Find out more about WPP shares including how to invest

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 2022