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Shares in WPP are 8.8% to the good this morning despite a lacklustre Q1 report card: Q1 net revenues -5.1% (6.1% FX headwind as GBP recovers), like-for like group sales fell -0.1%, key North American sales fell 12.3% (a whopping 10.6% FX drag) and net debt rose 8%.
The positive reaction likely derives from a combination of factors including, 1) Q1 not being quite as weak as expected, and not enough to jeopardise 2018 guidance (In fact management expects a slightly stronger second half), 2) The group has announced a fresh look at strategy, focusing on growth, and, 3) Potential for some M&A (disposal rather than acquisition).
The latter stems from weekend reports that CVC Capital has approached WPP about acquiring its Kantar market research division. This, ironically, is the one which updates us monthly on UK grocery market share, a sector itself extremely busy with M&A this morning. It also follows a collapse of merger talks with peer Neilson, which had valued the unit circa £4bn. This could be a first step towards simplifying the media/advertising giant in the post-Sorrell era, allowing it address underperforming businesses and focus on growth, something we will hear more on from a pending strategic review.
If such a transaction goes ahead, might it be the opening scene of the break-up that many have been calling for after the group (or rather its CEO) got too big (for his boots)? Or just careful pruning? The results aren’t much to write home about this morning, so the share price reaction implies optimism about, not just turning a new page (post-Sorrell), but opening a new chapter, reinvigorating the group under new leadership (yet to be found).
At 1250p (breakout to early-March levels) hopes seem high that the shares can regain not just mid-late Feb highs (17% upside to 1470p), but continue their retracement (already bounced 15% from April’s 2018 lows of 1080p) towards early 2017’s 1928p all-time peak (54% upside). Having fallen from grace (share price and CEO), investors will be hoping that management can engineer a more elegant recovery.
Mike van Dulken, Head of Research, 30 April 2018
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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