On this day last year, the share price of advertising and public relations giant WPP (LSE: WPP) tanked after it released a disappointing Q3 trading update, and new chief executive Mark Read conceded that turning the business around would require “decisive action and radical thinking.”
What a difference a year makes. Today’s Q3 trading update has sent the share price up over 6% (and rising), as I’m writing. The update revealed a return to revenue growth, with improvement in major markets and sectors. Organic growth of +0.7% beat a City consensus of -0.6%.
Read said: “WPP’s performance in the third quarter is another important step in the strategy we outlined in December 2018 to return the company to sustainable growth in line with our peers in 2021.”
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The news was good across the board. Its AP, LA, AME, CEE unit (a bit of a mouthful that covers Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe) was the strongest performing region, with like-for-like revenue less pass-through costs from continuing operations up 4%. India, the group’s second-largest market in that region, was the standout performer, with growth of over 15%.
Elsewhere, the UK was also strong at 3.1% and Western Continental Europe posted a creditable first quarter of growth this year at 1.7%. North America, although still negative, improved again, with a 3.5% decline following last quarter’s -5.9% and Q1’s -8.8%.
I like what I see
The new boss has achieved a lot over the last 12 months. WPP now has fewer, stronger agency brands. There’s new leadership in many of its companies, and the group has a renewed commitment to creativity, powered by technology.
Meanwhile, net debt at 30 September of £4.5bn was down from £5bn last year, and the balance sheet is set to be further strengthened. Yesterday, shareholders approved a deal to sell 60% of the group’s Kantar business for $3.1bn. Management will use $1.9bn of the proceeds for deleveraging and return the remaining $1.2bn to shareholders.
I’m seeing a business where the structure has been simplified, the culture reinvigorated, and the balance sheet improved. And I like what I see.
Cheap P/E and generous yield
There are plenty of strong FTSE 100 dividend candidates around for investors at the moment, and WPP is among those that rank high on my buy list. Even after today’s strong rise in the share price, I still think the stock offers great value.
Ahead of today’s update, the consensus among City analysts was that earnings per share (EPS) for calendar 2019 would come in at 100p, and that the board would declare a dividend of 60.8p. With the shares currently changing hands at around 980p, the price-to-earnings (P/E) ratio is 9.8 and the dividend yield is 6.2%.
The P/E is very cheap in my book and the dividend yield generous. Furthermore, while the company hasn’t changed its guidance on full-year revenue and margins, several analysts have said they think the guidance looks too conservative after the Q3 performance.
WPP isn’t yet into peak health and growth. There will, in the chief executives words, “be twists and turns along the way” to delivering its longer-term targets. However, I think investors can be encouraged by the breadth of the recovery across the business revealed in today’s update.
