WPP shares trade close to record highs after strong January sales

<p>WPP REPORTS 4.6% BOOST TO REPORTED REVENUES AND PROFITS BEFORE TAX OF £1.51BN WPP, the UK advertising giant, met forecasts with a 4.6% boost in […]</p>

WPP REPORTS 4.6% BOOST TO REPORTED REVENUES AND PROFITS BEFORE TAX OF £1.51BN

WPP, the UK advertising giant, met forecasts with a 4.6% boost in revenues to £11.53bn and net sales growth of 3.3% on a like-for-like basis. These results came against a backdrop of a 7% currency headwind thanks to the strong pound sterling and this headwind was unchanged from previous guidance.

Profits before tax grew 12% to £1.45bn on a constant currency basis and reported billings hit £46.19bn, which marked a growth of 6.8%. Estimated net new business billings – sales it won throughout the year – stood at £5.83bn. This means WPP remained in first place for net new business tables for a third year in a row.

The strongest revenue growth area for the group came in the UK, where it enjoyed a 12.9% like-for-like growth compared to 9.5% in North America and 3.8% in Western Continental Europe, which is perhaps yet another sign of continued business confidence in the UK’s economy.

STRONG JANUARY SALES BOOSTS CONFIDENCE

Giving another boost to shareholder confidence was the fact that the firm enjoyed a stronger than expected start to January business sales. Like-for-like revenue grew by 6.7% in the month with net sales (like-for-like) growing by 3.9%, which was a pace of growth not only above 2014 as a whole but also exceeding the final quarter of the year.

Of course it remains to be seen yet whether this first month is a sign of things to come and we must take this strong start with a pinch of salt. Nevertheless, there will be investors out there who may be backing the firm to maintain a higher rate of revenue growth for the first quarter of the year if they can maintain their January revenue run-rate. A stronger than expected first quarter could raise hopes of a profit upgrade but it’s still very much early days yet.
The firm has confirmed it will continue to target a 3% rate of growth in both revenue and net sales growth (both on a like-for-like basis).

INDUSTRY CONSOLIDATION SET TO CONTINUE

The advertising industry remains in a consolidation phase, where acquisitions and mergers are likely to continue as firms focus on cost-saving initiatives and new media technology. WPP remains confident of not only retaining existing business but also winning new business as a result of industry consolidation. The group completed 65 transactions in 2014 and there is every expectation that M&A activity will continue into the next year for strategic digital partnerships, new technology and as a way for the firm to enter new markets. Last year the firm made 36 acquisitions specifically to enter new markets and territories.

WPP chart

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.