Berenberg lowers target price on WPP

Berenberg stated that while its new price target offered upside and it thinks agencies are generally oversold, it also noted that – on its new 2023 estimates, which were 7% below consensus – the stock was not yet at trough forward price-to-earnings multiples.

"Despite the fact that we do anticipate weaker trading for 2023, it is clear that the company has so far delivered a good performance in 2022. The message from the agencies has been consistent – they do not yet see any sign of the downturn that the market is now anticipating. We believe that slower recovery in certain costs like travel and in hiring (given the tight labour supply) could even drive modest upside surprise in the H1 margin. That being said, we do not change our underlying estimates for FY 2022, other than to reflect the latest FX situation. For Q2, we forecast organic growth of 6%, with an H1 headline PBIT margin (preassociates) of 11.7%," said the analysts.

Moreover, the German bank also thinks that WPP's lower net income to cash conversion means that, while the stocks trade at apparently similar P/E levels, on a free cash flow yield basis the stock was still "considerably more expensive" than French rival that of Publicis.

Reporting by Iain Gilbert at Sharecast.com