WPP – advertising giant to rebound with news of new CEO?
WPP was thought of as the bellwether of the advertising industry and as such was widely regarded as a global economic barometer, but these are changing times for the group. New technology should help open up avenues for growth over the longer term, this is reflected in new media related business being WPP’s fastest growing area.
2017 proved to be a difficult year for the company, with three cuts to future sales growth and the shares down by around 27% and things have not got any better with the sudden departure of its CEO Martin Sorrell in April.
Although the departure of Sorrell may be seen as a blow to the company by some, we see this as an opportunity for a new, younger CEO to enter the fray. No decision has yet been made on who this might be, but this will give the CEO a chance to break up a company, which is arguably too big, and allow for more of a focus on disruptive media channels. In their latest trading update, the company said that they intend to build on their strengths by taking a fresh look at their strategy. They are aware of the need to recognise the challenges and opportunities presented by the structural shifts in their industry, and the need to execute resolutely against it.
Key to this outlook for the future is the company’s willingness to proactively address the under-performing parts of their business and the need to ensure that capital is deployed to those areas that will grow fastest and maximise shareholder value.
The shares trade on around 9.9 times 2019 forecast earnings, along with a prospective yield of around 5%, which historically makes the shares look attractive. The big question is what happens once the new CEO takes over regarding a new strategy and the possibility of selling off parts of the business. With restructuring in order to simplify its structure, cut costs and focus on technology with the growth in on-line media continues at a fast pace and WPP could be set to benefit further from this area, we see some potential for strong upside here.
We have an initial price target of 1400, with a possible dividend yield of 4.9%, which gives a potential upside of 19%.