Berenberg lowers target price on WPP

Berenberg noted that while WPP-compiled consensus was for 3.1% like-for-like growth in the third quarter, an alternative consensus had risen to 3.5% as it came closer to results time.

"We think this reflects rising expectations following the well-above-forecast results for the other agencies. Thus growth of 3.8%, while officially above expectations, probably fell a bit below what some had hoped for," said Berenberg, which reiterated its 'hold' rating on the stock.

The German bank admitted that it was true that WPP had "tougher comparables" than its peers, given a large Covid-19-related contract win in Q3 2021, but it said the "reality" was that, when looking at the numbers on a three-year stack versus pre-Covid-19 levels, the group continues to "lag" IPG and Publicis.

"In many ways, we think WPP is paying the price for its strategy under previous management. It is behind Publicis on the integration side, having operated as a disparate set of assets in the past (many of which would compete against each other). The restructuring – which aims to undo this – began only under Mark Read. Equally, the lower exposure to digital transformation may reflect a) the more traditional approach of previous management, and b) the fact that the company was overly leveraged when Mark Read took over, and thus had to focus on selling assets rather than scaling up in business transformation via acquisition, as Publicis has done," said Berenberg.

"WPP has more restructuring to do, and may re-embark on M&A in due course, and thus may converge on Publicis metrics over time. However, for now, we see it as offering lower free cash flow yield than its French counterpart, as well as lower growth."

Reporting by Iain Gilbert at Sharecast.com