The bulls are out in force with indices on both sides of the Atlantic hitting new record levels this week but full year results from global marketing business WPP (WPP) offer some reason for caution.
Advertising spend is considered a useful bellwether for the health of the economy as when businesses are feeling flush they tend to allocate more funds to marketing their products and services.
Given its global reach and breadth of industry exposure WPP is certainly worth monitoring in this regard.
SLOWING GROWTH
After a slow end to 2016 and relatively weak January, WPP is guiding for organic net sales growth of 2% for 2017.
Consensus had been expecting growth of 3% and the shares are marked down 6.5% to £17.87 after a strong run.
Part of this relates to company-specific factors such as the loss of key accounts like Volkswagen and AT&T but also to wider macro conditions and weak new business wins.
At the headline level the numbers are flattered by weak sterling - with 2016 pre-tax profit up 22.4% to £1.99bn but up just 9.1% in constant currency terms.
MESSAGE FROM THE TOP
WPP’s founder and head Martin Sorrell says: ‘Whilst Trumponomics may well result in an increase in the United States GDP growth rate and the United States is the biggest ($18 trillion) GDP engine out of a total of $74tn worldwide, political uncertainties in Europe, West and East, the Chinese focus on qualitative growth and the longer-term recovery of Latin America, probably mean that stronger growth will be harder to find outside the United States.
‘America First, if the new Administration’s plans are implemented, will almost definitely mean a stronger American economy, at least in the short- to medium-term.’
WHAT ARE THE ANALYSTS SAYING?
Liberum analyst Ian Whittaker, reiterates his ‘buy’ advice and £21 price target and says: ‘We continue to like WPP and our view remains that it should benefit from likely stimulus in the US economy plus reduced concerns over media buying but, given the strong run recently, there is likely to be an impact today.’
Investec’s Steve Liechti stays at ‘hold’ and puts his price target under review.
He comments: ‘Full year figures show slower fourth quarter like-for-like than expected, but a better margin helped by FX. Also the outlook target for like-for-like is lower than we expected at 2% so we see the comments as net disappointing. Hold given global macro uncertainty and a premium international rating post Brexit.’
