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MarketScreener Homepage  >  Equities  >  Nyse  >  Interpublic Group    IPG

INTERPUBLIC GROUP

(IPG)
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New contract wins help WPP to improved second-quarter trading

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08/09/2019 | 05:53am EDT
Branding signage is seen for WPP Group, the largest global advertising and public relations agency at their offices in London

LONDON (Reuters) - New client wins including Instagram and eBay helped WPP report better-than-expected trading in the second quarter, giving a lift both to its shares and the boss of the world's biggest advertising company.

Mark Read, who took over from founder Martin Sorrell last year, has been working to simplify the group by merging agencies and changing incentive schemes after clients complained the owner of Ogilvy, Grey and Finsbury had become too unwieldy.

The British company said on Friday its key sales measure - organic growth less pass-through costs - fell 1.4% in the second quarter, beating the 3% fall expected by analysts.

It was also an improvement on a fall of 2.8% in the first quarter and enabled WPP to reiterate its full-year outlook.

The stock, which had slumped earlier this week to a near four-month low, jumped as much as 10% in early trading and by 0845 GMT was up 6.3 percent at 973 pence.

"We believe that we have the right strategy," Read told Reuters. "There will be twists and turns on the way but we set out a three-year plan and I would say we're now more confident that it's the right plan."

WPP is in the middle of an overhaul after the loss of key clients and work led to several profit warnings in 2017 and 2018, the same year Sorrell quit over a complaint of misconduct, which he denied.

Shares in the company fell 60 percent between March 2017 and March 2019 as it lost work from clients including American Express, United Airlines and Ford - a partner for 75 years.

The stock is up 20 percent since then, slowly closing the valuation gap with U.S. rivals Omnicom and Interpublic which have performed more strongly in recent years.

"The investment case at WPP is all about the multiple where the significant discount the group suffers vs peers ... is entirely down to the perception that WPP's growth has permanently diverged from the peers," analysts at Citi said.

"With this in mind we think results will be taken well," noting WPP had been trading on just nine time prospective earnings against 11 to 13 for its rivals.

INCENTIVE SCHEMES

For the first half, group sales were down 2%, enabling WPP to reiterate its guidance for a full-year drop of between 1.5% and 2%.

A company veteran, Read was forced to act after clients complained that its 130,000 staff were too slow to provide content in a digital world.

He has responded by merging certain agencies such as JWT with its digital outfit Wunderman and changing incentive schemes, aiming to break down barriers and improve collaboration in a firm that was largely built by acquisitions.

A disposal programme, including the planned sale of a 60% stake in market research arm Kantar, is set to raise 3.6 billion pounds, enabling it to reduce debt and return proceeds to shareholders.

WPP said clients had reacted well, helping it to lately win work from Centrica, InterContinental Hotels and Eurostar.

Major packaged goods groups, which had curtailed their spending, are starting to invest more in the United States, he added.

With restructuring completed the group will focus on investing in technology and talent.

It is also making progress in the United States where it is seeking to improve its creative firepower following a particularly weak spell. While sales there were down 5.3%, that was an improvement on the 8.5% drop in the first quarter.

French rival Publicis cut its 2019 revenue growth guidance in July after it endured a weak second quarter in the United States.

Read said WPP was not immune to global trade tensions but he believed it was on the right track to return to growth.

(Reporting by Kate Holton; Editing by James Davey and David Holmes)

By Kate Holton

Stocks mentioned in the article
ChangeLast1st jan.
INTERPUBLIC GROUP -0.51% 21.32 Delayed Quote.3.34%
OMNICOM GROUP -0.13% 78.5 Delayed Quote.7.18%
PUBLICIS GROUPE 1.55% 46.38 Real-time Quote.-7.39%
WPP GROUP 0.10% 1006.5 Delayed Quote.19.30%
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Financials (USD)
Sales 2019 8 701 M
EBIT 2019 1 148 M
Net income 2019 672 M
Debt 2019 2 623 M
Yield 2019 4,41%
P/E ratio 2019 12,5x
P/E ratio 2020 11,4x
EV / Sales2019 1,25x
EV / Sales2020 1,17x
Capitalization 8 256 M
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Mean consensus HOLD
Number of Analysts 13
Average target price 25,64  $
Last Close Price 21,32  $
Spread / Highest target 31,3%
Spread / Average Target 20,2%
Spread / Lowest Target 3,19%
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Managers
NameTitle
Michael Isor Roth Chairman & Chief Executive Officer
Christopher J. Coughlin Chief Operating Officer
Frank Mergenthaler Chief Financial Officer & Executive Vice President
John Halper Chief Information Officer & Senior Vice President
H. John Greeniaus Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
INTERPUBLIC GROUP3.34%8 256
OMNICOM GROUP7.18%17 239
WPP GROUP19.30%15 838
PUBLICIS GROUPE-7.39%11 969
JCDECAUX2.53%5 799
HAKUHODO DY HOLDINGS INCORPORATED6.78%5 606