WPP is not out of the woods, Berenberg analysts say

WPP’s problems are not over after sales beat expectations in the first quarter, according to analysts at Berenberg.

The world’s biggest advertising company, which parted company with founder Martin Sorrell in April, left annual profit guidance unchanged on 30 April as it reported net sales better than analysts’ forecasts.

Berenberg said the market’s positive response was understandable after 12 months in which WPP disappointed investors several times. But profit estimates will get worse before they improve, they said, maintaining a ‘hold’ recommendation and 1,275p price target for WPP.

Recent results from WPP’s rival Publicis indicate advertising agencies are not in terminal decline, as some investors fear. But for WPP to start growing again it has to go through a hefty programme of restructuring, investment and disposals that will suppress earnings.

"WPP is not out of the woods yet, with tougher UK comps to come, a weak US trend likely to continue (the company’s highest-margin region) and management admitting that no assumption has been made for any major client account losses (despite Ford’s global creative review being underway, among a number of others),” the analysts said in a note to clients.

At 1515 BST, the shares were up 1.2% to 1,262p.