When any shares drop 15% it suggests bad news. And this is very much the case for media giant WPP today. It may not be quite the media giant it once was, but its £13bn market cap remains very respectable. And share price slumps offer opportunities to capitalise on investor fear and panic while shares are repriced. Sometimes prices fall too far and too quickly – owners jumping ship, fearing furthering declines – only to recover some lost ground. And herein likes the potential for a trade.

This morning’s reaction is in response to a host of issues (in no particular order);

1. Q3 like-for-like net sales -1.5% easily missed consensus/City expectations of +0.3%.
2. US growth of -5.3% is especially worrying. Creative also weakened. The recent loss of the Ford creative contract will hurt.
3. Management has cut 2018 sales guidance (now -0.5% to -1%). This is never a good look, especially not when you raised guidance less than two months ago (expected positive growth) because things were going so well. This suggests an awful end to the quarter. And hardly the best of starts for a new CEO, promoted from within.
4. “Turning around WPP requires decisive action and radical thinking” and “much work to do”. This restructuring could cost a lot and dent profitability.

Today’s sales miss and reversal of September’s guidance raise says a lot about visibility in the media/advertising/creativity space. It also means 2019 results could be much worse than consensus expected and could lead to big estimate downgrades in the next few days and weeks.

Another negative may be a mixed Q3 corporate earnings season in general, especially in the US, which could signal peak earnings growth (a driver for the recent market sell-off) and that corporate budgets may begin to get squeezed, with less allocated to advertising for fear that it doesn’t pay off.

The confirmation of a sale of a stake in market research business Kantar may have been timed to temper all the bad news, as the proceeds can be used to cut the £4bn debt pile (halve it?), and it would certainly simplify what the new CEO has recognised as an overly complicates business. However, it clearly hasn’t done enough.

If you believe things can only get worse, you could always trade the shares short, hoping they fall further towards the 740p (-17%) levels of summer 2012 or maybe even the 570p (-35%) last traded 2009/2011. Voila one trade opportunity

At 892p the shares remain offside by 15.7% today. However they are +8.5% from this morning’s near 6yr lows of 820p (-22%). There’s another option. Plenty for those bargain hunters prepared to test the waters of panic hoping the sell-off is overdone. As for the last; the 1020-900p gap could close, offering upside of 13%. This is possible, but will require only good news from here on.

Whatever you chose, be creative.

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Mike van Dulken, Head of Research, 25 Oct 2018