WPP shares take a tumble despite a return to growth

New and retained business aided the second quarter growth.

Article updated: 4 September 2018 9:00am Author: Graham Spooner

  • The revenue for the first half was down 2.1% to £7.5bn and the dividend remained unchanged.
  • The group revealed a slowdown in sales, taking a detrimental hit in its North American business.
  • We are putting our recommendation under review.

This morning, advertising giant WPP announced its first half results revealing a slowdown in its sales as newly-appointed chief executive Mark Read takes the helm. The results underlined the challenges in the job ahead for the new CEO who has promised to complete a strategic review by the end of this year.

In early trading, the shares tumbled by 7%, despite the group highlighting a return to like-for-like sales growth over the second quarter. The company has also performed strongly in terms of winning and retaining business over the period having won or grown business with clients such as Adidas, Hilton and Shell. The group said it now expected growth in full-year net sales to come in at a similar level to the first half, it had previously forecast no change.

Despite the positive outlook, the market has focussed on the mixed performance across the business, the pressure on margins and the fact that the next strategic review will be announced by the years end. This is set to address the group’s structure, the position of the company in the future and it is also likely to highlight underperforming operations with particular focus on the US market where there was deterioration in revenue over the second quarter.

Reported revenue for the period was down 2.1% at £7.493 billion - negatively impacted by currency headwinds, headline earnings were down by 6.7% to £948 million and the dividend was unchanged at 22.7 pence.

We thought at the start of the year that the shares could be a recommendation for medium to higher risk contrarian investors, but with a steady flow of negative news and a year to date fall in the share price of around 11% we will now be putting our recommendation under review.

Bespoke analysis from The Share Centre Profit Watch UK data series:

The latest Profit Watch UK found that the media enjoyed an expanding profit margin over the last four years, with revenue growth of 61% and profit growth of 245%. For WPP, today’s profit results are a 2 % increase on this time last year. In the last four years the company has enjoyed profit growth of 59%, and revenue growth of 37%. The company’s growth is lagging behind that of its sector.

WPP Sector - Media
Revenue growth since last year 1.2% 3%
Revenue grow over last 4 years 37.0% 61%
Profit growth since last year 2% 90%
Profit growth over last 4 years 59% 245%

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Graham Spooner portrait photo
Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.