Advertising giant WPP (WPP) is enduring a 9.6% slump in its share price to £14.37 after cutting its growth forecast for 2017 following a soft second quarter.
The pain is being felt by shareholders in the company but today’s update matters to all investors, even those who don't hold the stock. Read on to learn why.
Blaming growing economic uncertainty amid a rise in populism in the UK and US and ‘bumpy’ growth in Brazil, Russia and China, WPP now expects sales growth of 0% to 1% compared with previous forecasts of 2% at the first quarter stage and 3% at the beginning of 2017.
Even this muted performance relies on a recovery from a 0.9% decline in like-for-like sales year-to-date.
Of particular concern is the fact conditions worsened in July when like-for-like revenue fell 4.1%. As we discussed when previewing this set of numbers, advertisers offer a window into the health of the global economy.
When companies are feeling confident they will spend more on advertising and marketing and when they are more cautious this spending will be cut back.
WPP is a particular useful indicator because of the scale and breadth of its operations.
WHAT ARE PEOPLE SAYING ABOUT THE RESULTS?
Chief executive Martin Sorrell’s usual expansive commentary does not disappoint.
He is particularly critical of peers who are slashing fees in order to secure client business.
‘Our industry may be in danger of losing the plot,’ he says. ‘These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. As some say, you are only as strong as your weakest competitor.’
Investment bank Investec sums up the latest news as: ‘expected bad; got worse’.
‘Negative sentiment has hit the rating, but full year growth guidance/downgrades imply further share price pressure. We remain cautious given continuing poor peer agency trading, especially in the US,’ says analyst Steve Liechti.
Liberum analyst Ian Whittaker is keeping the faith, reiterating his ‘buy’ call and £20 price target.
‘We reiterate, particularly for longer-term investors, the current de-ratings offer an excellent buying opportunity. Additionally, WPP is poised to benefit from net new business wins in 2018, with early signs of this already coming through.’
