Questor share tip: WPP ups guidance

WPP raised its 2011 outlook yesterday, after it revealed that first-quarter revenues had risen by 7pc to £2.2bn. Questor say buy.

WPP
781½p +22p
Questor says BUY

The world's largest advertising agency, which owns groups such as JWT and Ogilvy & Mather, was recommended in March because of its global footprint.

Only 12pc of revenues last year came from the UK. The shares have been weak since then, but yesterday statement shows the investment case is sound.

Mature markets such as Germany and the US are recovering at a greater pace than forecast. Management now expects that like-for-like sales will rise this year by 6pc, compared with its earlier expectations of 5pc. It also said that margins will probably meet or surpass its target of growth of 0.5 percentage points.

Net debt has been reduced again, with average net debt going down £574m to £2.2bn in the quarter. This means that the company has met its targets and will now scrap its self-imposed £100m annual spending limit on acquisitions. New purchases are likely to be more in the region of £200m this year, including the recent buy of a stake in the German marketing group Commarco. No details of how much the stake cost were released.

Next year should be a good year for the group, with the US presidential election, the London Olympics and the UEFA football tournament adding 1pc to 2pc to global advertising spend. However, Martin Sorrell, chief executive, reiterated his view that 2013 will be a tough year. The US deficit will need to be tackled and that will mean tough times across the Atlantic.

The shares are trading on a December 2011 earnings multiple of 12.2 times, falling to 11 times next year, which does not appear overstretched. The prospective yield is 2.7pc rising to 3.2 pc next year.

The shares were tipped as a buy at 814½p on March 4 this year. They are 4pc below the recommendation price, compared with a market up 1pc.

There appears no obvious reason for the fall, but the shares were boosted by solid results from French peer Publicis last week. The rating on the shares remains buy.