WPP Group due diligence report.
Hatchworks has conducted due diligence on WPP Group, a British multinational advertising and public relations company and the world’s largest advertising firm. WPP owns a number of advertising, public relations, media and market research networks. Headquartered in London, United Kingdom, WPP Group is listed on the London Stock Exchange under the symbol ‘’WPP’’.
Financials — WPP Group
WPP Group’s current market cap is £13.4B and stock price is around £1.065.
With a predicted net-income growth of 9.6% for 2020E and 2021E, and a net income estimate for 2021E of in excess of £1.13B, this points to a P/E ratio of 11.5x.
The revenue/sales forecast is £11.9B for 2020E, indicating an EV/Sales ratio of 1.45x.
In terms of profitability, an operating margin of 14.9% is predicted for 2020E. This is slightly lower than competitors such as Publicis Group (PUB) that has an operating margin of 16.8% for 2020E.
WPP Group (WPP) is a yielding equity with a yield of 5.74% for 2020E. In contrast, competitor Dentsu Inc. (4324) offers a lower yield of 2.34% for 2020E.
The latest quarter results show that WPP Group (WPP) had a 5.2% year-on-year increase in their operating income and a £493M year-on-year decrease of net debt.
A recent development was the decision in summer 2019 by WPP Group’s shareholders to approve the sale of a majority stake in its market research business Kantar. WPP launched Kantar in 1992 by consolidating its existing market research businesses, and it soon became the world’s first leading marketing data, insight and consultancy company. Bain Capital agreed to buy 60% of Kantar, bringing WPP Group 2.37 billion to cut debt and return funds to investors hit by a share price slump. This could significantly strengthen WPP Group’s balance sheet. In addition to that, WPP Group continue to grow and retain long standing clients like the US Marine Corps and Centrica.
It is worth noting that, after the last recession, the share price plunged 46% before steadily recovering.
According to our analysis, WPP Group shows a steady net-income growth with a modest debt position and a good yield of 5.74%. Also, it expects to have a stronger market position. However, owing to cyclicality of ad-spending during recessions, Hatchworks is deciding to sit on the sidelines for now.
The Hatchscore is 5.6 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies
What is WPP Group?
WPP Group is one of the world’s largest communication groups. WPP owns a number of advertising, public relations, media and market research networks, including Ogilvy, Wunderman Thompson, VMLY&R, gray, IMRB, Millward Brown, Hill & Knowlton, TNS, GroupM, Kantar, and Burson Cohn & Wolfe. It is one of the “Big Five” agency companies, alongside its peers Dentsu, Publicis, Interpublic Group of Companies and Omnicom.
- Harris Associates LP.
- Massachusetts Financial Services Co.
- Miller Value Partners, LLC.
- Capital Research & Management Co. (World Investors)
- The Vanguard Group, Inc.
Advisors and Bookrunners:
- Goldman Sachs International Ltd.
- Merrill Lynch International.
- Morgan Stanley & Co Limited.
What are the risks?
- Loss of clients to competitors may have an effect on WPP Group market share, business, revenues, overall operations and financial standing.
- WPP Group’s 10 largest clients account for 14.4% of their revenues. A loss of one or more of these clients could have an impact on their business.
- Cyber attacks. A system breakdown or intrusion could have an impact on their business, revenues, and overall operations.
- Omnicom Group (OMC).
- Dentsu Inc. (4324).
- Interpublic Group of Companies (IPG).
- Publicis Group (PUB).
- Roberto Quarta: Chairman.
- Mark Read: CEO.
- Paul Richardson: GFD.
The Hatchwork Team
The forecast figures are based on the data of Marketscreener.com, and not from hatchworks: https://www.marketscreener.com/WPP-GROUP-12281876/financials/
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