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WPP shares trade close to record highs after strong January sales

Article By: ,  Financial Analyst
March 9, 2015 10:38 AM

WPP REPORTS 4.6% BOOST TO REPORTED REVENUES AND PROFITS BEFORE TAX OF £1.51BN

WPP, the UK advertising giant, met forecasts with a 4.6% boost in revenues to £11.53bn and net sales growth of 3.3% on a like-for-like basis. These results came against a backdrop of a 7% currency headwind thanks to the strong pound sterling and this headwind was unchanged from previous guidance.

Profits before tax grew 12% to £1.45bn on a constant currency basis and reported billings hit £46.19bn, which marked a growth of 6.8%. Estimated net new business billings – sales it won throughout the year – stood at £5.83bn. This means WPP remained in first place for net new business tables for a third year in a row.

The strongest revenue growth area for the group came in the UK, where it enjoyed a 12.9% like-for-like growth compared to 9.5% in North America and 3.8% in Western Continental Europe, which is perhaps yet another sign of continued business confidence in the UK’s economy.

STRONG JANUARY SALES BOOSTS CONFIDENCE

Giving another boost to shareholder confidence was the fact that the firm enjoyed a stronger than expected start to January business sales. Like-for-like revenue grew by 6.7% in the month with net sales (like-for-like) growing by 3.9%, which was a pace of growth not only above 2014 as a whole but also exceeding the final quarter of the year.

Of course it remains to be seen yet whether this first month is a sign of things to come and we must take this strong start with a pinch of salt. Nevertheless, there will be investors out there who may be backing the firm to maintain a higher rate of revenue growth for the first quarter of the year if they can maintain their January revenue run-rate. A stronger than expected first quarter could raise hopes of a profit upgrade but it’s still very much early days yet.
The firm has confirmed it will continue to target a 3% rate of growth in both revenue and net sales growth (both on a like-for-like basis).

INDUSTRY CONSOLIDATION SET TO CONTINUE

The advertising industry remains in a consolidation phase, where acquisitions and mergers are likely to continue as firms focus on cost-saving initiatives and new media technology. WPP remains confident of not only retaining existing business but also winning new business as a result of industry consolidation. The group completed 65 transactions in 2014 and there is every expectation that M&A activity will continue into the next year for strategic digital partnerships, new technology and as a way for the firm to enter new markets. Last year the firm made 36 acquisitions specifically to enter new markets and territories.

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