UBS starts WPP at 'buy', says risk/reward skewed to upside
Advertising giant WPP got a boost on Tuesday as UBS initiated coverage of the stock at 'buy' with a 2,050p price target, saying the risk/reward balance is skewed to the upside.
FTSE 100
8,280.63
16:49 04/10/24
FTSE 350
4,570.17
17:14 04/10/24
FTSE All-Share
4,527.24
16:54 04/10/24
Media
12,325.15
17:14 04/10/24
WPP
782.60p
16:40 04/10/24
The bank said that on 12.3x full-year 2018 price-to-earnings with an 8.6% equity free cash flow yield, the valuation look attractive after the stock fell 15% year-to-date following weak 2017 guidance. In addition, a net sales recovery in the second half of this year should provide a catalyst for a re-rating.
"While structural threats exist, we believe they are more than priced in: the market appears to be discounting circa 1% net sales growth at flat margins versus our estimate of 3.7% including M&A (2% organic) and historical agency holding companies sector growth of 6% (4% ex M&A)."
UBS said WPP looks well place to deliver earnings per share growth, albeit at a slower rate. For FY17-21, the bank forecasts EPS growth of 7% compound annual growth rate versus 11% FY11-16 and WPP's long-term guidance of 10-15%.
"Media buying scale, proprietary data assets, digital strength, a strong geographical mix and a smaller creative exposure should see WPP grow broadly in line with the market. Cost-out (IT and property), capital management (buybacks) and M&A should add to growth despite tax headwinds. FX should also provide a tailwind in FY17-18 (UK 13% of sales)."
At 1000 BST, the shares were up 1.6% to 1,696p.