WPP enjoys third-quarter boost from sterling softness

Helped by the weakness of sterling, WPP posted net revenue and profit margins ahead of forecasts for the third quarter, while the outlook was said to remain unchanged.

The advertising colossus reported that quarterly revenues grew 23.4%, with constant currency growth of 7.6%, 4.4% coming from acquisitions and over 15% from currency, though LFL net sales growth was 2.8% compared with 3.8% in the first half.

Net revenue of £3.1m compared to the consensus forecast via Bloomberg of £2.8bn.

Underlying revenue growth came from all regions, with strong growth western, central and eastern Europe, Asia Pacific, Latin America and Africa & the Middle East.

Revenue growth in the third quarter was slightly stronger on a LFL basis in North America, but in the UK were softer in almost all business areas, which WPP said was "perhaps the first signs of Brexit anxiety".

Most business sectors contributed strong growth, with advertising and media investment management and public relations and public affairs showing an improving trend compared with the second quarter, with data investment management and branding and identity, healthcare and specialist communications softer.

As in the second quarter and first half, advertising and media investment management showed the strongest growth, particularly in Asia Pacific and Latin America.

Operating profit margins improved by 0.4 points in the quarter, keeping margins well on track in line with the targeted 0.3 margin points improvement for the full year, on a constant currency basis.

Net debt for the first nine months increased by £434m to £4.69bn at the end of September at constant rates, as £846m was spent on acquisitions and share repurchases.

WPP won net new business of £3.47bn in the first nine months, compared to £3.2bn in the same period last year.

Chief executive Martin Sorrell said the outlook was not much changed, expecting low growth and low inflation, with the focus on costs likely to continue.

Initial expectations for the fourth quarter suggest LFL net sales growth of 3% alongside further margin progress.

Analyst Roddy Davidson of Shore Capital said the comment on UK weakness would be worrying to advertising sensitive UK media companies, with LFL of 2.1% in the quarter compared with 3.5% in the preceding.

"We are encouraged by the positive nature of this morning’s update and remain fundamentally positive on WPP’s ability to capitalise on a solid medium-term outlook for global advertising spend. Our current forecasts suggest strong EPS and DPS momentum over a three year view (+36% and +40% aggregate growth respectively) with the risk to estimates on the upside and more buy-backs and acquisitions likely."