In Q1 20, organic net revenue decreased by 3.3%, o/w -7.9% in March 2020 due to the containments imposed in a large number of countries in Europe and the US. In this extremely difficult environment, WPP signed new businesses for a total of $1.0bn (Intel global account, Hasbro and Novo Nordisk media accounts for instance). WPP confirmed cost savings of £700-800m in 2020 and added additional measures such as part-time working and voluntary salary sacrifice for some categories of employees.
Q3 19 was satisfactory with organic net revenue up +0.5% (vs -1.7% in Q2 19, -3.3% in Q1 19) excluding Kantar. The trend improved in all geographic areas including North America (38% of net revenue) which benefited from better advertising spendings at existing customers and a lower impact of losses of business as well. WPP does not see a deterioration in its businesses starting Q4 19 but keeps its 2019 guidance (organic net revenue: -1.5/-2%) considering the economic environment is getting worse.
The good surprise was the lower decrease (better than expected) in organic net revenue in Q2 19 (-1.4% vs -2.8% in Q1 19). This reflected the continuing negative impact of the contracts lost in H2 18 tempered by new wins this year. In H1 19, the ‘headline’ operating margin decreased by 0.8pt to 11.9% of net revenue. WPP does not see a deterioration for H2 19 and is now more confident of achieving its 2019 guidance.
WPP will sell 60% of Kantar’s shares to Bain Capital and will receive £2.5bn in cash, o/w £1.0bn should be returned to WPP’s shareholders. This operation should be dilutive (mid single-digit percentage) on 2020E ‘headline’ EPS and does not change the group’s dividend policy. Under the new shareholding, Kantar should benefit from the Bain Capital’s expertise in M&A and WPP’s investment of $400m in the technology to the benefit of WPP, which retains 40% of the shares.
There was no surprise in the negative trend of organic net revenue in Q1 19 (-2.8%). The North American activities weighed significantly (-8.5% organically) due to the negative impact of the losses of contracts in 2018. WPP is still targeting lower organic net revenue in the range -1.5/-2% in 2019.
Although 2018 was a poor year, the decline of organic net revenue (-0.4%) and the decrease in the ‘headline’ operating margin (-1.1pt) were in line with guidance which was reassuring. A positive turnaround is not awaited in 2019 as WPP is expecting a decrease in organic net revenue (-1.5-2%) and lower ‘headline’ operating margin (-1pt) on constant currency and excluding the impact of IFRS16.
WPP presented a new plan for 2019-21 in order to renew with growth. The medium-term targets include amongst others organic net revenue growth in line with peers and a headline operating profit margin (excluding associates) of at least 15% of revenue by the end of 2021. Furthermore, it was confirmed that the future of Kantar should be with a strategic or financial partner and WPP as a minority shareholder. The final decision is due to be announced in Q2 19.
Q3 18 was indeed a poor quarter. Net organic revenue decreased significantly, -1.5%, while a stabilisation was expected. WPP was affected by a deterioration in its activities in North America and the UK essentially. 2018 guidance is revised downwards. Lastly, management has decided to dispose of a majority stake in Kantar.
Although organic net revenue growth improved in Q2 18 (+0.7%) vs Q1 18 (-0.1%), it was tempered by easier comparatives in Q2 vs Q1. Furthermore, the decline in the headline PBIT margin by 0.4pt of net revenue in H1 18 is representative of the year 2018, while a flat margin was expected previously. Finally, the best news was related to contract wins which reached $3.2bn since January 2018, slightly above $2bn net of major clients’ losses.
In Q1 18, WPP reassured the stock market with a very slight increase in organic total revenue (+0.8% vs +0.2% in Q1 17) and practically flat organic net revenue in line with expectations (-0.1% vs +0.8% in Q1 17). WPP is looking for a new CEO amongst internal and external candidates and hopes to close the search quickly.
Disappointing FY17 results, although widely anticipated, but most of all a disappoining FY18e guidance with new measures required to adapt to a fast-moving environment. Our model is under review with valuation metrics and target price to be cut.
WPP reported a poor 9 month trading statement with a reduced FY17e guidance.
Q3 revenue (including the full impact of digital billings, i.e. linked to acquiring digital media space on its own account) were up 1.1% to £3,649m and down 2% organically while net sales declined by 1.1% organically (after H1 17 at -0.5%), mainly impacted by North America declining by 5.1%. For the 9-month period, consolidated revenues decreased by 0.9% organically. Note that this has to be read against a tough basis of comparison (9 month 16 organic top-line trends were c.+4%) and still reflects the FY16 contract losses (mainly AT&T in November 2016 and VW in January 2017) as well as low FMCG spending.
As, we believe, widely anticipated by the market, the FY17e guidance was cut for organic revenue and net sales to be flat (instead of growing between 0% and +1%) with a headline net sales operating margin now anticipated to be flat at CER instead of improving by +30bp….
WPP has just reported H1 17 revenue figures (including the full impact of digital billings, i.e. linked to acquiring digital media space on its own account) which were up 13.3% to £7,404m, a 0.3% organic decline (was 4.3% in H1 16) offset by an 11.4% positive impact from forex and +2.2% from acquisitions.
Net sales were down 0.5% organically (were +0.8% over Q1), implying a tough Q2: July was bad with net sales down 2.6% organically, below internal budget (cumulative organic net sales growth for the first seven months is -0.8%) and Q2, indeed, suffered from pressures on client spending namely in the FMCG sector
The reported net sales margin reached 13.9%, up 20bp from the 13.7% level a year earlier and flat at CER.
The headline diluted EPS rose by 16.1% to 45.4p (+2.4% at CER) while the interim dividend is raised 16.1% to 22.7p (i.e. a pay-out ratio of 50%).
Following these disappointing Q2 results, the FY17e forecast has been revised down further. WPP now anticipates organic revenue and net sales growth between 0% and +1% instead of the previous “around +2%”. Positively, the headline net sales operating margin target improvement remains unchanged at +30bp at CER.
WPP’s Q1 17 revenues (including the full impact of digital billings, i.e. linked to acquiring digital media space on its own account) rose by 16.9% to £3,597m. They were up 3.6% at CER (reflecting the continued weakness of sterling against most currencies: forex impact of +13.3%) and +0.2% organically, therefore slightly outperforming competitor Publicis (-1.2%) and Havas (+0.1%) but behind Omnicom +4.4%.
Consolidated net sales (after direct costs, i.e. a better indicator for underlying performance, although not used by competitors…) improved by 18.5% after a 13.7% positive impact from currencies and improved by 0.8% on an organic basis.
The Q1 profits and margin (which are not released at this stage) are said to be “well above budget and ahead of last year”.
The FY17e guidance remains cautious for an “around 2%” top-line organic growth with a stronger H2 partly helped by easier comparatives (H2 16 at c.+2% after H1 16 at c.+4% for net sales). Management said that this includes the recent Unilever and P&G announcements of cutting their marketing budgets…
The headline operating margin on net sales target remains at a 30bp improvement at CER (off a constant currency base margin of 17.3%).
Coming as a positive, the net new businesses is improving, having risen by 18% compared to last year to $2.1bn.
WPP reported solid FY16 results, in line with our expectations, with reported revenues (including the full impact of digital billings, i.e. linked to acquiring digital media space on its own account) up 17.6% to £14,389m (AV was £41,441m). This was after +4.2% from acquisitions, +10.8% from forex (sterling weakness; only c.15% of revenues in the UK) and +3% organic growth.
Net sales (after direct costs, i.e. a better indicator for underlying performance, although not used by competitors…) rose by 17.4% to £12,398m (+3.1% organic).
The headline OP amounted to £2,160m (+21.8%; +8.5% at CER), reflecting an operating margin of 17.4% of net sales (AV was 17.3%), up 50bp from FY15 but 20bp at CER, i.e. under last October’s target of +30bp at CER.
The headline diluted EPS rose by 20.9% (+7.7% at CER) to 113.2p, 2% above our 111p forecast, while the proposed final dividend is raised 28.7% to 37.05p (implying a total dividend of 56.6p versus our 53.2p expectations, up 26.7% with a payout ratio raised from 47.7% in FY15 to 50%).
Management highlighted an “above budget start” to the year with organic revenue up 1.5% in January (against a strong comparison basis: +4.2% in January 2015) but the cautious top-line organic guidance appears disappointing at only “around +2%”. Positively, the headline operating margin on net sales target is, as usual, for an 30bp improvement at CER.
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Capital markets day a potential catalyst; Buy
Companies: Kape Technologies
A well-attended virtual CMD highlighted the continuation of attractive market dynamics within the Group’s core Data Privacy segment, as well as offering insight into PIA integration progression and the Group’s product roadmap. The launch of the Kape’s customer dashboard further improves customer experience (‘CX’), providing an easy-to-use interface and attractive upsell/ cross-sell optionality. We have taken the opportunity to introduce FY’22E forecasts on the back of the CMD, with strong customer retention and in-market consolidation improving the competitive landscape. FY’22E sales of $150m (FY’20E: $123m) are forecast to deliver adj FCF of $39m (FY’20E: $19m), generating a FCF yield of 8.4% in FY’22E. The Group has a number of levers for outperformance against conservative forecast KPIs.
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
One Media's strong H1/20A financial performance is testament to the resilience of its business model and the market in which it operates. The Group generated material top line growth (+28%), driven through both organic channels (+9%) and acquisitions (+19%), whilst improving its margin profile. This financial strength culminated in the recommencement of its cash dividend policy. One Media trades at a discount relative to its peer group, our fair value per share scenario analysis and DCF valuation. We reiterate our Buy recommendation.
Companies: One Media Ip Group
4imprint’s order volumes are starting to recover as the US economy reopens. The company has been diligent at updating the market and the latest update shows order levels improving towards 50% of prior year, having dipped as low as 20% in early April. Cash conservation measures are having the desired effect and the group still had $28.1m cash (with lease debt only) at the end of May, despite having paid out $9.4m as a one-off lump sum into the pension scheme as scheduled. Based on assumptions over the speed and extent of the recovery but in the absence of formal management guidance, we have reinstated provisional forecasts.
Companies: 4Imprint Group
What’s new: OnTheMarket is extending its “COVID-discount” which was due to expire on 25 July for a further 2 months to 25 September 2020.
The discount will remain at 33% for the first month and will be 20% for the second month. These discounts will be given to all OnTheMarket agent customers who are paying on full-tariff listing agreements.
While revenues will be impacted in the short term, the Group will continue to conserve cash through the careful management of costs.
This was another very good year for MMX, with a comfortable beat of forecasts as management continues to execute its strategy of improving both the ‘quantum and quality’ of its revenue base. The one-off brokered sales (many from .vip in China) are steadily being replaced by rapid growth in new registrations of a much wider range of gTLDs and growing renewal revenue, all automated through the global registrar network – but more in Europe and the US. Group revenue jumped 25% YoY, assisted by strong new sales across the portfolio, the launch of a new brand protection product, and a FY (an extra five months) of the ICM acquisition while the outsourced platform model is keeping the cost base relatively flat so margins and profits are rising. MMX ended the year with $6.6m net cash and will revisit the intended maiden dividend in September, after the pandemic subsides. Given its automated business model and the switch of business and leisure online, this global issue may well be beneficial to MMX. However, with the current level of uncertainty in the global economy, we place forecasts Under Review.
Companies: Minds + Machines Group
A potential disposal, reasonable trading through Q2E and a pick-up in activity from a Google led re-ranking of XLMedia's websites could create the scenario for a material re-rating of the stock. While our forecasts and recommendation remain Under Review, we can see strong potential catalysts for share price advancement.
Cello Health (CLL.L): Recommended Cash offer
Companies: Cello Health
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: OPM ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
YouGov has updated on good H120 figures, with underlying revenue up 15% and adjusted operating margins increasing from 13% to 15% as the mix shifts further to the higher-margin Data Products segment. The group had cash of £27.2m at end January (lease liabilities only). With an online culture since the group’s inception 20 years ago, it is better placed than many to satisfy the increased desire to understand what is happening in populations by corporate and state at this time of uncertainty. We have reflected a more cautious outlook for the remainder of the year and will revert with FY21 estimates when the outlook is clearer.
What’s new: OnTheMarket plc (65% agent-owned and has almost 40% of independent UK estate and letting agents as shareholders) has released its January 2020 results revealing:
+ 32% rise in average branches listed to 12,497 (over 8,000 paying at year end; over 9,000 paying on 31 May 2020);
+ 12% rise in advertisers during FY20 to 13,364 (31 May 2020: 13,605);
+ 49% rise in mobile site traffic or portal visits to 237m;
+ 75% rise in average monthly leads per advertiser to 96.
Tremor’s AGM statement shows that Tremor was delivering on its strategy and on course to achieve FY20 revenue of $425m in Q1. However, the impacts of COVID-19 on the advertising industry led to a challenging Q2 20, with Tremor’s revenue falling with the market to be c40% below Tremor’s FY20 plan. In response, management have moved quickly to reduce FY20 opex by over $23m vs budget, and positioned Tremor’s platform to respond to a rebound in demand. There are encouraging signs for H2 20, but visibility continues to be low and Tremor is not giving guidance for FY20. We consequently introduce revenue and EBITDA ranges for FY20 and FY21, and place our estimates at the mid-point for FY20. To then highlight that Tremor’s platform can rapidly rebound, we move our previous FY20 forecasts to FY21. This reflects that we believe that Tremor’s investment case remains compelling, and even on our lower case FY21 EBITDA of $35m, Tremor is trading on 5x EV/EBITDA vs ad tech and AIM peers on >10x.
Companies: Tremor International
What’s new: Since 27 April 2020, when OnTheMarket started offering new “welcome contracts” almost 500 estate agent branches have signed up, with each business owner receiving welcome shares and over 60% either listing exclusively with OnTheMarket or on a “one other portal basis“.
OnTheMarket (“OTM”) is the largest majority-agent owned UK Property Portal. In its previous form Agents' Mutual, its agents with Board membership included SpicerHaart, Savills, Knight Frank, KFH, Strutt & Parker and Chestertons. OTM recognises that Agents’ listings provide the content for Portals to monetise, and Agents are the main source of Portal income. In recent years Agents’ shareholdings in the two large Portals, Rightmove and Zoopla, have fallen, while their prices have risen sharply. Duopolistic* pricing and reduced agent ownership within the two leading portals create the conditions for the next stage of OTM’s growth. OTM offers agents competitive prices with benefits of “mutual” ownership supported by external capital to fund marketing and growth plans. This includes use of 36.4m shares to attract agents with over 5,000 offices.