Shares in advertising giant WPP (WPP) have risen by 3.5% to 833.4p after it unveiled details of its future strategy under new chief executive Mark Read (pictured below).
Read, an internal appointment to replace founder Martin Sorrell after his controversial exit earlier this year, started at the helm in September and has seen the shares steadily slide (against a weak market backdrop) under his tenure up until today.
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There are some obvious points that will have pleased the market about today’s update.
The company is looking to take out costs, it wants to simplify the business and it is going to prioritise dividends which it pledges to maintain at 60p, implying a yield of 7.2%.
The business will have four new reporting segments. The first is Communications which is currently 75% of the business and encompasses the traditional work of an advertising agency.
The other areas are Experience, Commerce and Technology - that these are priorities for expansion is reflected in the comment that they ‘already’ account for a quarter of revenue.
The company certainly cannot be accused of being too bullish with financial performance targets. A margin of 15% is targeted by 2021 and organic growth is only expected to catch up with peers by the same year.
CAN THE STRATEGY TURN THINGS AROUND?
Not everyone is convinced WPP has gone far enough. AJ Bell investment director Russ Mould says: ‘A pledge to maintain full year dividends at 60p, implying a generous yield at the current share price, will be welcomed on one level.
‘It could also be seen as a missed opportunity for a more radical rebasing of the payout which would have enabled more capital to be invested in the transformation of the business.’
Liberum analyst Ian Whittaker agrees: ‘We see why WPP has done this but there was a case for being bold, reducing or scrapping the dividend and using the near-£800m of cash savings for greater reinvestment.’
Whittaker also notes the targeted £275m of annualised cost savings by 2021 and says: ‘Our view is they could have done more here - we thought £500m a year was a reasonable figure (with £500m of restructuring costs) based on a 5% reduction in the staff numbers and property savings. Half of the savings will be invested, limiting margin upside.’
The company has also confirmed plans to offload at least some of its interest in market research business Kantar.
Shore Capital analyst Roddy Davidson says: ‘With regard to Kantar, (data insight and consulting) this morning’s statement confirms that the board has decided to develop the business with a potential strategic or financial partner (retaining a “significant” minority interest and strategic links).
‘Proposals will be evaluated on their financial and strategic benefits and if a transaction is agreed it is likely to be announced in the second quarter of 2019 (a timeline that may disappoint the market). Preparations are reported to be well underway with numerous expressions of interest received.’
