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Wpp expanding

Discussion in 'General Share Chat' started by Inspiration, Jul 13, 2015.

  1. Inspiration

    Inspiration Moderator Moderator

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    Last edited: Jun 25, 2015
  2. Inspiration

    Inspiration Moderator Moderator

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    Research from HL:

    WPP has issued an AGM trading update, covering the first four months of its financial year. The trends are broadly similar to the first quarter (details below) - like-for-like net revenue grew by 2.3%, with the UK the strongest performing region. WPP has also announced its intention to increase the dividend pay-out ratio to 50% by the end of 2017 (FY14: 45%). If achieved, this would see the dividend grow at a slightly faster pace than earnings over the next three years.

    23 April 2015: WPP, the world's largest media agency, has reported first quarter results which show net sales growing by 6.0% in sterling terms. Having experienced a significant currency headwind in 2014, the group is now enjoying a modest tailwind, owing to the recent strength of the dollar against sterling. This added 1% to the reported growth rate, with a further 2.5% growth coming from acquisitions. Stripping out these effects, like-for-like growth of 2.5% was reported, which is slightly behind the group's full year target (> 3% growth). WPP expects growth to pick up in the second half of the year, reflecting easier comparatives, so is leaving its guidance for 2015 unchanged. Following a strong run over recent months, the shares have seen some profit taking this morning, falling by around 1% in early morning trading.

    Read more share research from Hargreaves Lansdown

    Key highlights:
    • WPP reported like-for-like net sales growth of 2.5%. All regions and sectors grew, with the UK and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe regions reporting the strongest growth.
    • Almost 37% of the Group's revenue came from direct, digital and interactive in the first quarter, up 1.1 percentage points from the previous year. Digital revenue across the Group was up almost 11% in constant currency and 5.1% like-for-like.
    • The Group completed 7 transactions in the quarter and bought back 0.8% of its issued share capital. This saw net debt rise to by £218 million to £3.175 billion at 31 March 2015.

    Outlook:
    WPP has maintained its full year guidance. Its two main targets are to deliver:
    • Like-for-like revenue and net sales growth of over 3%, with a stronger second half expected, partly as a result of easier comparatives.
    • Net sales margin improvement of 0.3 margin points excluding the impact of currency.

    Over the long term the group continues to target headline diluted earnings per share growth of 10% to 15% per annum delivered through revenue growth, margin expansion, acquisitions and share buy-backs.

    Our view:
    WPP has delivered a solid start to the year and is leaving its full year sales and margin guidance unchanged. The shares offer a prospective yield of 2.8% (variable and not guaranteed), with the prospect of double-digit dividend growth over the next three years, according to current analyst consensus. While the valuation is at the top end of its historical range, we find this combination of growth and income attractive in the current environment, and remain confident in the company’s long term prospects.

    Lord Leverhulme is famously said to have remarked that he knew half Unilever's advertising budget was wasted, but he didn't know which half. Any industry that can get clients to willingly spend double what they really need to, has to have something going for it.

    WPP is the largest media agency in the world. Big though it is, with 188,000 staff across the globe, WPP is essentially a collection of smaller businesses often working independently and specialising in different parts of the advertising and media industry. The wider group looks after administrative tasks such as budgeting, planning and tax affairs, allowing the individual companies to get on with what they do best. This model works well enabling WPP to benefit from economies of scale and knowledge-sharing, while at the same time being able to offer tailored solutions, whatever their clients demand.

    Advertising is a cyclical industry - in a downturn advertising budgets are often the first to be slashed. But at the moment conditions in most of WPP's markets are good. The company has also done an excellent job of controlling costs which has allowed margins to progressively expand over recent years. This combination of solid growth and rising margins has translated into very strong cash flows, which has enabled growth to be supplemented by earnings-enhancing acquisitions. In recent years, deal-making has been focused on raising exposure to digital media and faster growing nations, with a target for 40-45% of sales to be earned from each of these categories within five years.

    WPP's strong cash flows have also enabled it to reward shareholders with earnings-enhancing share buybacks and dividends. Over the last twenty years it has grown the dividend at a double-digit compound annual growth rate. The shares trade on a price to earnings ratio (P/E) of around 16.3x which is a circa 30% premium to its long run average. While we would prefer to pay less for the shares, we find the prospect of strong earnings and dividend growth attractive in the current environment and remain confident in the company's long term prospects.
     
  3. Inspiration

    Inspiration Moderator Moderator

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    Blackrock Inc have reduced their holding to below 5%.
     
  4. Jimi Marshall

    Jimi Marshall A Legendary Member

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    Hi Inspiration,

    Thanks for the info from your previous messages, I brought some WPP shares this year for the long term, looks like a solid company doing what it says.

    All the Best
    Jimi
     
    Inspiration likes this.
  5. Inspiration

    Inspiration Moderator Moderator

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    Definitely for the long term. Unfortunately, if there's an economic downturn, one of the first areas to be cut back is advertising.
     
    annemarie likes this.
  6. Jimi Marshall

    Jimi Marshall A Legendary Member

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    Thanks Inspiration, agreed, looking forward to the results on March 4th, going into digital in a big way and expanding, director buys has been encouraging.

    GL
    Jimi
     
    Inspiration likes this.
  7. Inspiration

    Inspiration Moderator Moderator

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    Many economically-sensitive businesses struggle to maintain dividends when the going gets tough. WPP, the world’s largest media agency, has proven a notable exception. Profits fell during the financial crisis but the dividend was held. In every other year over the last two decades the dividend has grown, at a compound annual rate of c. 19%.

    The company has done an excellent job of controlling costs in recent years, which has seen margins expand progressively. This has translated into very strong cash flows, enabling organic growth to be supplemented by earnings-enhancing share buybacks and acquisitions.

    The group has a long-term target to grow earnings per share by 10% to 15% per annum. If it can achieve this, the outlook for dividend growth ought to be encouraging. The prospective yield is 3.1%, rising to 3.9% by full-year 2017, on current analyst forecasts, though of course there are no guarantees.
    https://www.hl.co.uk/news/articles/five-companies-with-a-twenty-year-record-of-dividend-growth
     
    Jimi Marshall likes this.
  8. Jimi Marshall

    Jimi Marshall A Legendary Member

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    Thanks Inspiration, all gist to the mill.
    GL
    Jimi
     
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