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.
Below is Sorrell's pseudo market-speak jargon with today's results announcement. I think he could speak a bit more in clear English. Sounds to me like jobs cuts are coming.
Commenting on the 2017 results announcement Sir Martin Sorrell, CEO of WPP, said:
2017 for us was not a pretty year, with flat like-for-like, top-line growth, and operating margins and operating profits also flat, or up marginally.
The major factors influencing this performance were probably the long-term impact of technological disruption and more the short-term focus of zero-based budgeters, activist investors and private equity than, we believe, the suggested disintermediation of agencies by Google and Facebook or digital competition from consultants.
"In this environment, the most successful agency groups will be those who offer simplicity and flexibility of structure to deliver efficient, effective solutions and therefore growth for their clients. With this in mind, we are now accelerating the implementation of our strategy for the Group.
"No company in the world of marketing or business transformation has a greater or more varied repertory of talent and capabilities than WPP. Our strength, however, resides not only in the scale and variety of those skills, but in our unique ability to combine them in service of our clients growth which is why most of the worlds leading companies choose WPP to provide them with communications services.
"For many years we have placed horizontality at the heart of our strategy by presenting clients with tailor-made and seamlessly integrated offers to meet their specific requirements. Over the last year, we have begun to apply that philosophy to the structure of the Group itself by simplifying a number of our operations.
As our industry continues to undergo fundamental change, we are upping the pace of WPPs development from a group of individual companies to a cohesive global team dedicated to the core purpose of driving growth for clients.
As we build an increasingly unified WPP, we are focusing on a number of areas that will allow us to deploy our deep expertise with greater flexibility, efficiency and speed. These include: further simplification of our structure; stronger client co-ordination across the whole of WPP, including greater responsibility and authority for global client teams and country managers; the development of key cross-Group capabilities in digital marketing, digital production, eCommerce and shopper marketing; further sharing of functions, systems and platforms across the Group; and the development and implementation of senior executive incentives to align them even more closely to Group performance.
We start this new phase of our journey from a position of market leadership, and with total confidence in the enduring value of what we offer our clients. We will report at every opportunity on our progress.
Good analysis GI, not sure how you waded through all the organics, like for likes, actuals, in sterling, dollars, euros, yen, & a report written in Sorrell speak so quickly. Well done.
Agree on the analysis.
Slightly disappointed by the reaction this morning, as they must have been more or less as expected. Yield is OK & well covered, so it could be a share one can sit back & forget until it turns one way or another. My view is the world economy is growing healthily. Businesses will always need to advertise. Advertising is changing and becoming more complex in terms of the options of how to advertise. No one knows the advertising world better than WPP, and they have always been good at adapting to meet the markets, so I'm optimistic. 2018 is world cup year - a good one for advertising usually. Sorrell tends to give cautious forward looking statements, so let's see what this year brings.
Has anyone taken any off the recovery (or potential bounce)?
I do hope this is the bottom for UK PLC. I sold half here looking to average down on AA where the new CEO (Uber, Expedia...) will announce the plan for the next few years under the pressure of brokers wanting a dividend cut to pay off debt faster despite being covered 2 times. Simon is a sound guy who wont make rash desitions to be seen to justify the salary... not a public guy like Martin Sorrell but he knows success. I believe it must be the best risk vs reward upside in UK PLC as nothing much as changed since IPO only sentiment and the market.
(ShareCast News) - WPP shares have rallied to a six-month high amid a recent improvement in the ad market, capped off by a bullish view given by analysts at Goldman Sachs and Numis on Friday.
"Recent advertising trends have been better than expected across the board," says Goldman in a note to clients, though its top pick in the sector was ITV, based on an attractive price multiple of 10x 2019 earnings despite improving advertising/audience share momentum and M&A potential.
Goldman expects 2017 ad figure to emerge showing a "more positive note in most TV markets", based on analysts' conversations with industry participants, read-across from recent results and comments from large advertisers.
A "slightly more positive" outlook is seen for 2018, weighted towards the first half of the year, helped by easy comparatives compared to last year's slow start, and sports events.
The structural outlook still varies to a great degree by market, analysts say, with viewing and pricing trends "key".
On TV ad trends, Goldman said these "have decoupled more meaningfully from macro indicators over the last year, exacerbating structural concerns over the outlook for TV".
Previewing WPP's final results on 1 March, broker Numis forecast profit before tax of of £2.09bn and earnings per share of 118p, with the consensus forecast for £2.195m and 120p respectively.
Other global marketing communications groups have already reported and Numis characterises the tone as "cautiously optimistic", with IPG particularly upbeat, and both IPG and Omnicom guiding to organic revenue growth of 2-3% for 2018.
"After a challenging 2017, we would not be surprised if WPP guided very cautiously at its finals and then raised guidance as it progressed through the year. The group gave a robust defence of its business model at the Q3 results, when it indicated that consultancies and Facebook/Google were not structurally challenging its business, but that 2017 was disappointing due to the major CPG clients reducing spend."
Buying opportunity at WPP, says Liberum
Advertising giant WPP (WPP) has been one of two top performing stocks in the market correction, proving concerns about agencies have been overdone, says Liberum.
Analyst Ian Whittaker retained his buy recommendation and target price of £18.15 on the shares, which rose 3.9% to £13.87 yesterday.
WPP has been one of the two best performing FTSE 100 stocks in the recent corrections the other Just Eat driven by positive comments from (other advertising agencies) Publicis and Dentsu, suggesting that 2018 will be a better year than 2017, he said.
Whittaker believes the positive comments add weight to arguments that the structural concerns on the agencies have been overdone.
If this is correct, then the multiple of 11x for WPP looks too low and represents a buying opportunity, he said.
Ye, I'm only in at 12 and 13xx so my margin of safety is better, however, that's assuming it's not all over for the advertising industry and everyone is going to do it via social media, Google and Facebook lol !!
Games -- will add some more at the open if it doesn't jump too high!
WPP's businesses themselves are at a Structural v Cyclical juncture in the eyes of the market. £12.27 strikes me as an excellent entry point, the dividend looks soundly covered compared to many others!
WPP is 8% of my 22 stock portfolio. At £12.31 I'm at an XIRR of -22.76%. So as things stand a SP of circa £16 will be necessary to get me back into the Black! :-(
My 10 are showing a very slight positive - up 0.34%. My stars have been Ultra & Johnson Matthey (with a nicely timed deal announcement) which are both up over 12%. Barratts are my biggest loser - down over 10% thanks to the leaked Government Research which hit house builders & financials - Imps are down nearly 9% & this baby (which we all believe in) is down 5.5%, thanks to some analysis of the advertising sector saying 2018 will be a tough year. However World Cup years are usually good ones for the sector, so we shall see.
"He was asked if he thought large consultancies were a threat to his business"
This must be making reference to Bain acquiring WPP's stake in Asatsu-DK. I'm glad WPP are out of an unhappy investment but I'm concerned the JV partner thought so-little of WPP's usefulness that they created the trouble they did.
Last weeks Moneyweek was making, flippantly I'm sure, reference to one of the Tech Companies (Amazon, IIRC) acquiring WPP. It wasn't a deeply serious article but it did reiterate the point that unless SMS starts to get the SP moving pressure will keep building for something to be done.
Disc. At £13.90 WPP is 7.4% of my 22 Share Portfolio. WPP has currently -15.25% of my invested capital and an XIRR of -14.19% since my first investment in 17 Aug 16.
Martin Sorrell was on Bloomberg last night. Always interesting to hear what he has to say; and he is impressive, with the figures he can roll off the top of his head about world economies, country GDP, & company worth stats.
Overall he's very positive about the world economy in 2018. (That's the economy, not the stock market.) Barring the usual unforeseen geopolitical events, he thinks it will be a positive year, with the world economic situation fairly well aligned. As well as the big 2 economies - US & China - he felt some of the emerging markets were looking good too - Indonesia, Philippines, India, Latin America, South Africa - the main threat he saw was from cost control in a low inflation world.
As for the advertising world, he was fairly positive - the big 7 tech giants would largely dictate where it was going, but he seemed to think WPP had good relationships with all of them. He was asked if he thought large consultancies were a threat to his business; as they seem to be going into the creative world. He was largely dismissive of that threat; but said they could have an effect on advertising spend. When they can't make money any other way (I'm paraphrasing him now - adding my own jaundiced slant) consultancies will sell cost cutting advice, and advertising is a great place for them to achieve savings without immediate effect on the bottom line.
So overall he seemed positive on the world economy for 2018, and although there was little WPP specific, he seemed positive on the year ahead & very comfortable about WPP's position.
As we're trying to look forward over the course of this year, here's an interesting article on Morningstar analysing what a Corbyn Government would mean for investors. Although this Government has 4 years to run in theory, it does not surprise me that they reckon there's a 50% chance of a Corbyn Government in the next 2 years.
And as an indicator for the state of the UK economy H&T (UK's biggest pawnbroker) this morning reported their personal loans are up by over 90%. It will be interesting to see the other retailers reporting how Christmas was for them - specially for you guys backing that sector.
Bill its your most ballsy stock picks and I am much aligned. I hold and maintain that these are the best...
AA (cr -38%)
...and waiting for my entry entry in Lloyds.
While all these stocks may may have further to fall they also track Neil Woodfords funds that have performed terribly, but I believe now the risk reward ratio is strongly in favor of this strategy. Especially as the global economy is looking good. If by this time next year these stocks are still languishing I will probably give up and go back to funds.
Last year I remained a critic of Stagecoach and I still don't see the profitability of buses .But you will be glad to know the AA had a look their strategy again with more focus on motoring products and a re-think on how IT will work going forward. I also think the investors are understanding the breakdown model better. Less breakdowns = good, electric cars at first will be costly for the AA but as they become more reliable than electric (not for many years) they will actually be good for the company and not the other way round.
On trusts, I use them when investing in overseas regions, where I haven't got the foggiest about individual companies, but think the region is on the way up. I also use it for sectors which can be complicated to monitor and analyse - like tech, already mentioned, and mining. When looking at the mining sector and choosing individual companies you have to start understanding the drivers on each mineral and the geopolitical risks of each area mined in etc. - Much rather leave that to the experts.
I also believe a decent fund manager should always be able to beat the market, so I don't use ETFs for things like this. Where ETFs are good (IMHO) are for investing in commodities, and for shorting an index or commodity (not something I have ever done.)
"So that's my selection. I did make it before seeing Bill's so apologise for the commonality. I hold 9 of the 10. (I don't hold IMPs, as I have a longer term holding in BAT.) I'll try to post quarterly updates at least; but I won't update on every BB..."
Some interesting and well-argued selections, Hardboy (I won't say "good" - as only time will tell!) And nothing wrong with a bit of commonality - though again, as for whether it is "great minds think alike" or "fools seldom differ" we will have to wait...
Good use of trusts to give exposure to more 'specialist' areas of the market where stock selection is harder for most private punters - it's something I probably haven't done enough of over the years (other than a few funds of long standing) and I can see myself looking more at this area going forward.
I did run my rule - and my ruminations - over SLA... Absolutely right way to be leaders rather than laggards when it comes to much-needed industry consolidation, and I suspect the savings and synergies will indeed be substantial. But even then, I worry about margins long-term for any stock with a heavy weighting in third-party asset management, particularly now with MiFid II upon us.
The others I am more agnostic about, but I can see the case for each ...
FWIW I have found the process of monitoring and sending round quarterly updates of my 2017 picks to be highly instructive - both in helping to understand where and why my thinking was right and (too often) wrong, and in the ongoing debate which such postings have facilitated. For me, anyway... though hopefully at least some others will have found some value in it!
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