Following on from Provident Financial’s disastrous performance on Tuesday, WPP has also displeased shareholders, after warning its full-year sales growth will be lower than expected.
Shares in the world’s biggest advertiser fell 12% on the day. Year-to-date its shares have lost 20% of their value.Indeed having been besieged by weaker sales and harsh criticism over its lack of succession planning, it looks set to face its worst year in a decade.
The advertiser reported that July like-for-like revenue growth was -4.1% and net sales growth of -2.6%, which were both behind budget and as such it had revised its second quarter forecast.
To make matters worse, all regions, apart from the UK, Latin America and Central and Eastern Europe, showed slower revenue growth than the year prior, while all of its business sectors were down – with advertising and media investment management and data sustaining the most damage.
“Following the pressure on client spending in the second quarter, particularly in the fast-moving consumer goods or packaged goods sector, the quarter two full year revised forecast has been revised down further, with both like-for-like revenue and net sales forecast to be between zero and 1.0% growth,” WPP said in its update to shareholders.
In light of the news, The Share Centre announced it was placing its recommendation of WPP under review.
“WPP is very much seen as the bellwether of the advertising industry and as such is widely regarded as a global economic barometer and so it is unsurprising the shares have reacted in the way they have this morning,” Graham Spooner, investment research analyst at The Share Centre.
“It is likely that the market will continue to concentrate on the group’s gloomy outlook for growth 2018, particularly as it expects little in the way of global GDP growth next year.”
Hargreaves Lansdown Select UK Growth Shares manager Steve Clayton, who holds a 3.22% weighting in WPP, defended his holding, predicting that things for the group “should get easier from here”.
“The group has had a very strong new business winning performance in the first half, with new billings of $4.2bn won, up from £3.0bn last year. This gives the group some momentum going into what would otherwise be a difficult near-term outlook. As it is, comparatives for the second half and beyond should get easier from here.
“Forecasts will inevitably be trimmed to reflect the new guidance but we don’t expect to see the numbers move by much overall.”
In addition to the gains from new billings, weak sterling helped soften the blow of sector headwinds.
WPP enjoyed higher net sales of £6.4bn versus £5.6bn in 2016, 15% higher profits at £793m and a dividend hike of 22.7p, up 16.1%.
Clayton also cited the group’s improved margins, up 0.2% to 13.9, and discounted shares as reasons to hold onto the stock.
“It’s impressive then to see WPP report improved margins, up 0.2% to 13.9, as they use their scale and creative leadership to good effect. The shares are currently trading at a discount to their longer run average rating and the prospective yield of over 4% could be supportive.”
