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Share tip of the week

Each week, our analysts put the spotlight on a company from our list of recommended shares to buy. As always, it's recommended as a medium/long term investment (approximately 18 to 36 months). This week's share tip of the week is...

WPP (WPP)

  Company Sector Current price
(pence)
Change
today
  
Investment
objective

Risk
Our
view
  WPP (WPP) Media  1685.00 c  +0.90%    Balanced Medium  Buy
 Analysis last updated on 24/03/17 at 1677p Recommended stop loss of 15%

View charts, and further company data

Company overview

The story of how Sir Martin Sorrell took a supermarket trolley manufacturer and turned it into one of the world's leading advertising agencies has become part of British business legend. Their agencies include Young and Rubicam and Ogilvy and Mather.

Our view

Under/over valued?


There was another record set of results in March, with a 17.6% increase in revenue to £14.3bn, leading to a 21% rise in net profit of £1.4bn. The group however forecast slower net sales growth for the year ahead of 2%. The dividend was raised to 56.6 pence (44.69p).

WPP is the bellwether of the advertising industry and as such is widely regarded as a global economic barometer. It offers a wide range of exposure to both digital media and global markets. New technology should help open up avenues for growth over the longer term, this is reflected in new media related business being WPP's fastest growing area.

The shares trade on around 13.3 times 2017 forecast earnings, along with an attractive prospective yield of 3.7%. The share price hit an all-time high the day before its latest results and has fallen back by around 12%, as the market reflected on its cautious outlook. The shares have performed well over recent years and we are happy to continue to recommend them as a buy for long-term investors. The growing importance of emerging markets and digital media to the company looks set to continue, allied to improving dividends, earnings momentum and a steady flow of acquisitions.



Bullish points

• There has been steady progress in emerging markets, with around 30% of revenue now coming from these countries.

• The growth in on-line media continues at a fast pace and WPP could be set to benefit further from this area.

• Increased the size of its share buyback and improvement in margins


• Potential benefit of tax cuts by Trump administration.



Bearish points


Pressure on economic growth and increased political uncertainty.


• US investigation on media sector regarding possible price fixing.


• The CEO remains cautious on the outlook for 2017.


• They have lost key clients including Volkswagen and AT&T.

Comment updated 24 March 2017



Author: Graham Spooner, Investment Research Analyst

The facts

The group employs around 175,000 people in over 100 countries; its largest clients include Ford, Unilever and Johnson and Johnson.

They are targeting 40 to 45% of revenue to come from emerging markets and digital by 2019.

The group regularly make small acquisitions.


Below are the trailing 12 month results to the end of the final period versus the previous 12 month trailing period. As we are reporting rolling returns below, the data may be different to that which you see on other parts of our web site. Results are as follows

Current

Basic Earnings per Share 114.8p
Dividend per Share 56.6p
Dividend Yield 3.4%
Revenue £14,389m
Operating Profit/(Loss)
Debt to Equity
Cash on the Balance Sheet
Dividend Cover

Previous

Basic Earnings per Share 95p
Dividend per Share 44.7p
Revenue £12,228m
Operating Profit/(Loss)
Debt to Equity
Cash on the Balance Sheet
Dividend Cover

Change

Basic Earnings per Share 20%
Dividend per Share 26%
Revenue 17.6%
Operating Profit/(Loss)
Debt to Equity
Cash on the Balance Sheet
Dividend Cover

Forecast Estimates 2017

Earnings per share 126
P/E 13.3.
Dividend yield 3.7

Month(s) company is expected to go ex-dividend

May
October

View our previous recommendations

Please read our investment research policy to understand how our analysts reach their recommendations.



Valued using at least 15 minute delayed prices (where available)