WPP misses interim sales forecasts, lowers guidance

WPP reported slightly weaker than expected top line growth at the half year stage and lowered its guidance for full-year like-for-like sales on the back of weaker spending by consumer goods firms.

At £7.4bn for the latest six-month stretch, which was 13.3% ahead of the prior year period, the company fell slightly short of the consensus forecast for £7.5bn.

Revenues were 1.9% higher on a constant currency basis but 0.3% lower on a like-for-like basis, below the company's target for 2% growth.

Management also revised down its forecast for full 2017 fiscal year like-for-like sales growth to between zero and 1.0% from 2.0% before.

The company cited lower client spend, especially from fast-moving consumer goods companies, as the main culprit.

Its reported net sales margins on the other hand improved by 0.2 points to 13.9%, versus a full-year target for a 0.3 point increase which management reiterated.

Meanwhile, the firm's reported profits after tax jumped by 124.7% to £634m, for a 80.6% increase on the year earlier period.

In parallel, reported diluted earnings per share of 46.6p were better than the 45.7p that analysts had anticipated, having risen by 146.6% on a year ago.

The interim dividend payout was set at 22.7p, versus 22.0p expected.

Commenting on the advertising giant's interims and fresh guidance, Steve Liechti at Investec pointed out the scope for further downside pressure on the stock, highlighting how before the changes the shares were trading at more generous valuation multiples than those of its peers, at a price-to-earnings ratio of about 12 times and an EV/EBITDA multiple of roughly 10.0.

"Negative sentiment has hit the rating, but FY growth guidance/downgrades imply further share price pressure. We remain cautious given continuing poor peer agency trading, especially in the US."

For his part, Paul Richards at Numis lowered his target price on the shares from 1,975p to 1,875p. However, in his judgement both the dividend increase and progress on buybacks were indicative of long-term confidence in the group's prospects.