Barclays lowered its price target for WPP on Monday but left its ’overweight’ rating unchanged, saying it viewed the company’s annual guidance cut as a temporary ‘hiccup’.

On Friday, WPP cut its yearly guidance after the advertising company reported its second-quarter was hurt by weaker spend in its US technology clients.

WPP reported first-half revenue of £7.22 million, up 6.9% from £6.76 billion a year prior. Second-quarter revenue alone grew at a slower pace of 2.7% to £3.76 billion, however.

Pretax profit slumped 51% to £204.3 million from £418.6 million. WPP reported finance costs of £230.7 million, a 59% rise from £144.9 million.

As a result, WPP said it now expects like-for-like revenue growth, less pass-through costs, of 1.5% to 3.0% for 2023, its guidance cut from a range of 3% to 5%. Its headline operating margin target of ‘around 15%’ was maintained, meanwhile.

Barclays said the lower 2023 guidance was ‘clearly disappointing’ but argued that WPP was ‘down but not out.’

‘We view this hiccup as temporary...and we disagree with the market view of poor cash flow forever (highest revenues, lowest market cap[italization] among agencies). We still see significant value in the shares,’ Barclays said.

‘We still believe that WPP will turn their fortune around in the next two years and deliver higher margin and higher cash flow. We acknowledge, however, that our view is likely to fall on deaf ears as long as short-term organic disappoints. We nonetheless see significant value in the shares and stay ’overweight’ with a lowered 1,150 pence target [down from 1,250p] (owing to lower forecasts), offering 41% potential upside.’

Shares in WPP were down 1.2% at 808.60 pence on Monday morning in London. Over the past 12-months, the stock is down 1.0%. Barclays hold WPP at ’overweight’ with a price target of 1,150p.

Barclays also lowered its earnings per share forecast for 2023 by 4.8% to 96.8 pence on Monday. Its forecasts for financial 2024 and 2025 were lowered by 8.2% and 11.2%, respectively, to 104.5p and 114.3p.

‘We would stress that we have gone beyond the [first half of financial 2023] impact to de-risk forecasts as much as possible,’ Barclays noted.

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