WPP in record territory

Against slowing global GDP growth, advertising and PR leviathan WPP has reported a great set of first-half results. Sterling's slump following the EU referendum could now be fuelling a post-vote recovery in the UK, which has extended an eight-year bull run and pushed the share price to an all-time high. It's unlikely the rally is over, either.

With reported billings jumping 9.3% to £25.2 billion, the weak pound fuelled double-digit revenue growth to £6.5 billion. WPP is benefiting from consolidation trends seen in the industry and has won a number of "very large" contracts that will feed into group revenue later this year and into 2017, although two recent losses have "checked progress". WPP has just lost the AT&T account.

It's the advertising and media business that's delivering the fastest growth, with sales momentum lurching from 3.4% in the opening quarter to 5.8% in the second. The data investment management division swung back into growth during the second half of the period and both PR and Branding and Identity, Healthcare and Specialist Comm divisions did well.

Geographically, the UK was likely hit by some Brexit uncertainty with like-for-like revenue growth slowing to 3.5% in the second quarter from 4.7% in the first quarter. However, net sales grew by 3.4% in the three months to June, up from 3.2% in the previous quarter. The US remained strong, up 4%, and there were improvements in Europe and elsewhere

Headline pre-tax profit surged 15% to £769 million, although hefty write-downs of £122 million versus a one-off gain of £203 million last year, caused a 40% slump to £425 million on a reported basis.

The impairment is largely related to its stake in comScore, which is under investigation by the Audit Committee. "Puzzled" by the length of the investigation, WPP thinks the situation should be resolved in the second half of this year. Without this write-down reported pre-tax profit would have risen 7.8%.

Diluted earnings per share rose 17% to 39.1p, and WPP, whose profit is typically weighted to the second half of the year, says current trading is going well, with the UK still showing signs of a post-Brexit vote recovery.

Shareholders are certainly getting back their fair share of the profits pie: dividends are up over a fifth to 19.55p and the group spent £197 million on share buybacks in the first half - although that's less than last year.

Tighter control on working capital was offset by WPP's acquisition/buyback programmes and foreign exchange translation, with net debt ending the period at £4.2 billion. The group completed 36 acquisitions in the first six months of the year, 13 of which were in new markets.

Firing on all cylinders

WPP's share price has been firing on all cylinders since the financial crisis and the marketing giant has soared over 500%. Up 6% to an all-time high of 1,846p Wednesday, the shares are kissing the upper band of the trading channel whose origins can be traced back to 2011.

With sterling weakness fuelling a post-Brexit vote recovery and positive outlook, WPP is bound to remain popular. Numis Securities analyst Paul Richards now reckons the shares are worth 7% more at 1,975p, upgraded from its previous 1,775p target.

Of course, there are risks. In his coveted analysis of the state of the industry, Sir Martin Sorrell warns that a number of known unknowns - slowing UK GDP growth after Brexit, Scottish Independence, Grexit, Ukraine and the upcoming US elections, to name a few - is still holding back corporate investment.

"There is a clear correlation between investment in brands, top line like-for-like growth and total share owner return, through stock price appreciation. You cannot cost cut your way to long-term success," he says.

Driven by currency tailwinds, Richards reckons full-year sales will jump by 16% to £12.2 billion - 3.5% of which will be organic, 4.5% from acquisitions and 8% foreign exchange - with pre-tax profit rising a fifth to £1.9 billion, giving earnings per share of 111p. Trading on 16.6 times forward earnings, a 55.7p full-year dividend gives a yield of 3%.

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