"One of the unwritten rules of investing is NEVER buy on the hope of a takeover. "
I suspect the reason it's unwritten is that it's not a rule of investing.
On the contrary, I've made some of my best and quickest profits from buying shares in the hope / expectation that they would be taken over. A recent example is Fenner, which I'd bought back in February at just under £4.54. Following the bid the price jumped on 20 March to around £6.10.
Another was IWG, bought at £2.09 in October, after a big price slump, which rose to £2.54 in December following a bid, and subsequently rose as high as £2.75. Admittedly, the bid didn't go through, but they're still trading at around £2.50, so a decent profit even if the shares had been held following the bid.
Of course there are many situations where the rumours come to nothing, but to completely rule it out as a strategy is to miss out on some great opportunities.
"I strongly expect a bid to be made that will be at a decent premium to today's price"
One of the unwritten rules of investing is NEVER buy on the hope of a takeover.
Although it's a possibility I'd be very surprised if anyone did make a bid for WPP in its entirety (unless it was to cherry pick the bits wanted and sell on the others.) As the largest Advertising Agency in the World anyone looking to buy it would be considerably more than doubling their own size. Is anyone around who can cope with that assort of increase in operations? I suppose the possibility is that one of the tech giants may see it as a logical way to diversify, but then it would be running a completely different type of business.
The 2 COOs are probably relishing their newly extended roles, and will doubtless have their own ideas about the best way to go.
"We expect the group to consider internal and external candidates and believe Sir Martin will be hard to replace with one person. The succession has led to questions over the size and scope of WPP and we can see a change of management accelerating the current process of reducing overlap and increasing flexibility. Although we would not rule out a margin reset, we do not view WPP's margins as out of step with the industry given its functional and geographic split, in addition to a reporting structure which increases margins relative to peers both by reducing the numerator and increasing the denominator.
We do see scope for the group to put dividend increases and buybacks into abeyance given its already high payout ratio and leverage at the top end of its target debt corridor. Our base case is for a new management team to continue and refine the existing strategy, though we acknowledge that any group without a CEO is vulnerable to a bid approach in the interregnum."
"It is hard to understate the influence Sir Martin Sorrell has had on the entire marketing industry let alone WPP. In the early years, Sir Martins role was a portfolio manager, deciding what areas WPP should have exposure to. More recently, his role has been more focused on making sure the various parts of the portfolio work together and acting as a figurehead/ spokesperson for the group. The new CEO will need that same combination of skills.
In literally the last year, WPP has been seen by many to be losing its way. Against the backdrop of an improving macro environment, organic growth has been slowing. Anyone coming in to take over the CEO role at WPP will be entirely focused on turning this round. The slow fix is fairly straightforward in that it is the existing group strategy. The quick fix is to look at asset disposals as a way of managing the group to faster growth, something that Sir Martin was loathe to consider. It is not clear whether the current margin targets or dividend payout will survive a change of management. But then again, valuation is so depressed (10x 2018E P/E) we think value will out. We rate WPP as a Buy."
"After Sorrells exit and interim replacement by two internal COOs, WPP is now firmly in play. But no easy solutions here. Not really a turnaround situation (core business already experiencing structural pressures from digital disruption, co v tightly run in terms of costs & margins, will struggle in upcoming pitches in the near term, Sorrell can set up in competition). Not an easy break-up situation (definitely has surplus assets, eg. market research, ad tech, healthcare, other specialist) but hard to argue disposals would drive much re-rating (eg in mkt research, Nielsen/IPSOS trade on 9.3x/8.4x ebitda vs WPP currently on 7.9x ebitda 18e). Possible takeover target (for private equity to break up, for Accenture/Deloittes to get much bigger in digital marketing, for Dentsu maybe among existing competitors) but big bite for any of these at c$34bn EV/c10x ebitda to acquire."
"Due to the centralized way Sir Martin Sorrell ran the company his departure raises the risk of a) account losses, b) talent leakage, c) break-up and sale of some divisions and d) a deep restructuring with a great deal of cost and uncertainty. In our view all of
the above would have happened anyway at the point the CEO chose to leave. In our view the company is likely to eventually adopt a similar strategy to Publicis based on the convergence of marketing and consulting."
"Time to put WPP into your wire shopping basket?With Sorrell staging a well-publicised departure, is it time to take a look at the upside potential of Wire and Plastic Products? After all, the advertising giant's shares have been in a savage ..."
"Even though investors have moved past the Syria missile strikes and are working on the basis that there will be no extended conflict or market-adverse retaliation, equity markets are struggling for direction. This lack of positive reaction is a ..."
I suppose the market was already valuing WPP negatively with a lot of bad news factored in, so how much lower can it reasonably go? And one of the reasons it was viewed negatively was markets hoped for a change of direction and strategy, this latest news makes that more likely so I am sure some people are viewing this as a positive for the business.
It's certainly going to be an interesting story to watch; as will what Martin Sorrell does. He may be 73, but he obviously still has a lot of energy and is used to a high profile life mixing with the higher echelons of business. I can't see him wanting to give that up.
Bill: "this marks the end of "Sorrell speak" I shall miss it." In a perverse way so will I. I did quite enjoy his invention of language, but when one is trying to understand a complex announcement I would rather well accepted phrases be used so one can concentrate on the content, rather than the presentation.
Ultimately a case of "SHOCK NEWS - bloke, well past retirement age, retires... world keeps on turning..."
For all his historic success in building the business, the jury is out on whether Sir M has been a help or a hindrance over this past year or two... I guess we will find out over the next year or two.
But I think we can surmise which way the Board are on this... it's a shame they needed the rather obvious ruse of the "investigation", rather than just tell him to go. But I suppose that's the point - they probably did, and he wasn't listening.
Either way, I would trust the Chairman, he generally knows what he is doing... as do at least some of the other non-execs.
There's no doubting the success of WPP over 30 years under Sorrell, but maybe this will be a breath of fresh air for the company, as he has become an odious and overly politicised little chap of late.
As another poster put it on here, they won't need to fund such ludicrously high remuneration to one individual.
There will also be the prospect of selling divisions to allow some debt reduction, which could be sensible in the face of future and more expensive debt maybe?
I guess it's going to drop up to 20% this morning, just like Sage did last week.
Games - possibly not one of my better choices here - but heh ho I'm in it now !!
Will be interesting indeed - very hard to say how this will play out short term. Wouldn't be surprised if the SP falls, of course - but not even sure this is a given?
WPP is Sorrell, of course... and vice versa. Or at least, it has been... as the ad market evolves rapidly, there's been the increasing view that WPP will have to change with it - and probably faster and further than one, relatively elderly individual is willing and able to do.
First off, any long-term oriented investor should have been prepared for this, as a "known unknown" - he is 73, has been CEO about 10 times longer than most FTSE 100 heads usually manage, and his departure was always an (exponentially) increasing likelihood the further ahead you look, for whatever reason.
There is also the view that this is a corporate-governance "enhancing" move - there was not just the issue of Sir M's lavish rewards, but the apparent lack of succession planning (now confirmed, it would seem), questions over his accountability to the board, and various accusations of treating WPP as his own personal fiefdom (the latest formal investigation being merely a natural extension of the trend).
I can't see this having much effect on the ongoing operations of any of the myriad of units. It's a people business, so maybe there are Sorrell loyalists who may jump ship? Possibly, but could also work the other way. I think we can assume that the Sorrell model of diverse acquisition and "horizontal" integration will be affected - but then, the sustainability of this has been increasingly questioned in today's ad world.
Ultimately, it makes a break-up of WPP - to some degree - both more likely and sooner than the consensus would have seen it hitherto... it might be this more than anything that the SP concerns itself with from Monday. Is WPP really worth more than the sum of its parts? Or was the sum of its parts only really the artifice of the character and career of its creator... both increasingly backward-looking entities?
I think we can safely assume that this marks the end of "Sorrell speak" - but unlike Hardboy, I shall miss it. Whether I should do is perhaps another matter... it probably hasn't always been entirely helpful to the visibility of prospects for the business and its SP, and almost certainly has been self-indulgent to a degree. But as a colourful window into the mind of an undoubted business "giant", in a lamentably monochrome world of bland corporate speak and cagey caveat and conservatism, I have always found it a welcome diversion, both educational and entertaining.
It will be interesting to see how this plays out - expect a big fall on Monday open; but after that we shall see. The image of the company was that WPP was Martin Sorrell, but he obviously had a very capable team around him, so it will be interesting to see how the image of the company changes (I hope some of the Sorrell speak disappears from the reports) and, more importantly, how the fortunes of the business change.
Investors are exploiting turmoil at WPP to push for a break-up of the firm's sprawling global empire, it is claimed. They are said to be calling for bosses to offload Kantar, its £3.5bn market research arm, and use the cash to pay down debt, launch share buybacks and focus on its core businesses. - Mail
Potential successors to Sir Martin Sorrell, the besieged chief executive of WPP, have been identified in preparations for life after the long-serving boss. Internal candidates have attended board meetings as part of the succession planning and are in contention along with a "constantly refined list of external candidates". - The Times
True - I used them a little when they inherited some of my holdings from another broker that went bust, but I soon sold up & had no further dealings; but I received their daily e mail update, and found their analyses of companies quite good.
"I always take what brokers... with a large pinch of salt... Today the results changed nothing for me and I had the chance to double up... Every buy/sell has its risks but I reckon WPP is oversold/good value and will inevitably bounce back. We'll see."
I generally agree, Uncle D - and indeed we are bouncing back. The market is a quixotic and emotional animal - and often forgets that it has already "marked down" shares when it smacks them once more, when they actually report what the market has already discounted. Double counting, if not actually double dealing...
Results overall were fine - Q4 and early Q1 were weak, but we're talking short periods here, things can change quickly. Ultimately, by Sir Martin's own admission 2017 was "not pretty" - yet they can still grow EPS to 120p and the divi to 60p, record levels both... so, how much d'ya wanna worry!? 'Expectations' are the immediate issue here, rather than 'delivery' - and as we all know, expectations can and will change many times between now and this time next year... and are being guided (in part) by WPP's self-professed conservatism.
Anyway, edited broker highlights below, to be taken with that pinch of salt perhaps - but sounds like estimates may come down some 3%... put that against a SP down some 11%, from an already-discounted base.
"Poor Q4: WPP did -0.9% organic net sales growth for 2017 (versus our -0.4% ) implying a worse than expected -1.3% in Q4 (MSe 0.4%). There is a 1.5% miss at the EBIT level but the margin was in line with expectations down 10bps at 17.3%. The net eps outturn was in line at 120.4p
Weak guidance: WPP is guiding to organic flat net sales growth in 2018 and a flat underlying margin in constant currency. We have 0.5% organic net sales growth and a 10 bps margin improvement. WPP says it is guiding conservatively but this is still likely to put pressure on forecasts.
January net sales growth is down 1.2% although this is against a relatively tough comp ( 1.2% in Jan 17 was the strongest month of the year!)
WPP has reduced its medium term guidance targets: WPP used to guide in its medium term business model to 10-15% growth pa. This has been reduced to medium term growth of 5-10%."
"There is no escaping it: the 4Q is weaker than expected and weaker than some of the groups main peers. In terms of the main culprit it is clear this is largely a function of poor trading on the traditional side of the business (advertising and media buying was -2.3% for the FY vs. -1.2% forecast implying -3.7% in the 4Q). If the weak 4Q performance wasnt bad enough, the groups initial guide on FY18E is also perhaps weaker than investors might have hoped in light of positive commentary from peers. For the FY the group is guiding for flat growth and flat margins (not necessarily different from previous commentary) but January net sales down -1.2% - even if it is ahead of budget is hardly an auspicious start.
Margin Slightly Weaker Too Previous margin guidance had been for flat progression YoY but ended up down 10bps to 17.3%. In part this is explained by FX but also the weaker end to the year must have had a part to play. Flat margin guidance for 2018E is at first glance helpful but against the backdrop of a lower 2017A it implies downside for citi/consensus (17.7%/17.5%)
From an operational forecast perspective the lower base from 2017 and the flat growth/flat margin guidance would imply c. -3% off consensus estimates. FX pressures have reversed somewhat but we would still anticipate consensus EPS downgrades in the 3%-5% range."
WPP PLC reported it FY-17 results today, which showed disappointing Q4-17 revenue growth, with WPPs 2018 outlook statement giving a "flat" outlook. Along with this, WPP stated that the long-term impact of technological disruption is unlikely to abate, intensifying competition in WPPs markets.
WPPs Q4 net revenues (revenues less pass-through costs) fell by 1.3% on a like-for-like basis, which was a key disappointment for the stock market, especially after WPPs guidance for a stronger Q4, with positive growth.
Looking to 2018, WPPs CEO Sir Martin Sorrell has guided to a flat revenue growth outlook, weighted towards H2-18. Earnings growth is likely to be better however, at around 5-10%, but this is still a sharp slowdown on the previous target of 10-15% EPS growth. Overall, we see little to drive the share price higher near term, thus downgrade our recommendation to Hold (Buy) and ascribe a new target price of 1300p, based on an 8.5x EV/EBITDA multiple, which we think reflects WPPs industry status, yet lower growth outlook
"To buy in today we have to believe the broker views will be positive"
I always take what brokers and Motley Fool, etc. say with a large pinch of salt. I did my research on WPP and last year I bought some shares. Today the results changed nothing for me and I had the chance to double up and get a cheaper overall buy price and higher dividends. Every buy/sell has its risks but I reckon WPP is oversold/good value and will inevitably bounce back. We'll see.
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