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Stock of the week: WPP

Paloma Kubiak
Written By:
Paloma Kubiak

Helal Miah, investment research analyst at The Share Centre, picks WPP as stock of the week.

British multinational advertising and public relations company, WPP, is this week’s stock of the week. Once considered to be the bellwether of the advertising industry, WPP had been widely regarded as a global economic barometer, but these are changing times for the group. The group offers a wide range of exposure to both digital media and global markets and new technology should help open up avenues for growth over the longer term, as reflected in the greater speed of growth within the new media-related business.

Last year proved a challenging time for the company, with three cuts to future sales growth and the shares down by around 27%. The sudden departure of its high profile CEO in April added to the negativity surrounding the group.

Results in March also highlighted the pressure that is currently on the company as a result of lower advertising spending, especially from large consumer groups which has led to a number of analyst downgrades. There was a 0.3% fall in like-for-like revenue and a forecast for flat revenue and sales growth this year. Meanwhile, the group maintained a good profit after tax of £1.912bn and the dividend for the year rose by 6% to 60p.

The first quarter trading update in April came in slightly ahead of forecasts, with a 0.1% fall in like-for-like sales and a 4% drop in revenues owing to the stronger pound.

The growth in online media is set to continue at a fast pace and WPP could be set to benefit further from this. The shares currently trade on around 9.9 times 2019 forecast earnings, along with a prospective yield of around 5%, which historically makes the shares look attractive.

The big question is where the future of the company stands once the new CEO takes over in terms of a new strategy, a simplified structure, cost-cutting and an increased focus on technology. Moreover, there have also been rumours of the possibility of selling off parts of the business, including its Kantar market research division.

We maintain our buy recommendation; however, we would suggest that, due to recent results and the threat of disruption from the likes of Google and Facebook, that this is an idea for a contrarian investor.