Liberum expects weak performance from WPP, lowers target price

Analysts at Liberum took a fresh look at WPP ahead of the advertising and public relations outfit's full-year results on Friday, reiterating their 'buy' rating on its stock as it noted that the group's most pressing concerns appeared to already be priced in.

Liberum expects a "cautious message" from WPP on 2019, with a 0.5% dip in organic net sales for financial year 2018 alongside a 90 basis point drop in operating margins. However, with WPP shares at 8.1x adjusted FY19E, hence offering a guaranteed 7% dividend yield, and with the company having reset expectations at its Capital Markets Day back in December, the broker thinks all this "should be priced into the shares".

The broker, which did lower its target price on WPP to 1,290p from 1,375p, expects a "slow climb back" for the FTSE 100 constituent and thinks it will offer a re-run of the RELX recovery story, where the company gradually clawed its way back to market approval.

"We have made the point before that WPP has the look of a re-run of what happened with RELX a decade ago when the latter suffered a massive de-rating as secular fears combined with profit warnings and a rapid change of management derailed the stock, with the company falling into the high single-digit PE level as investors fled the name," said Liberum.

"We would see WPP as the makings of a similar story. For those investors prepared to wait, at c. 8.1x consensus FY19E Adjusted PE and a circa 7% yield, this has the makings of an attractive long-term story."

Liberum also expects WPP to be the "weakest performer in 2018" of the major agency groups.