We have been Neutral on WPP since early 2022, when we turned more positive on the ad agency sub-segment, arguing it was not as challenged as the market thinks. Now, with WPP having underperformed Publicis by 30% in 2022, we think it is time to revisit the investment thesis. We turn more positive on both i) the agency sub-sector, which in our view should sit in the ''quality'' media basket and no longer in the ''cheap cyclical'' one and ii) WPP itself, which we upgrade to Outperform.
WPP scores well on our Headcount and Advertisers'' Outlook Monitors
Our Headcount Monitor suggests that WPP has been leading tech-savvy recruitment in the past 6 months, which is indicative of a healthy digital pipeline. In parallel, WPP''s recent contract wins are set to come with high marketing spend, which could bring upside risk to our organic forecasts.
We see easing pressure on margins and positive catalysts ahead
After a mixed margin performance in 2022 (China, use of freelancers), we see easing pressure on WPP margins at a time when the company should deliver improvement from its ambitious transformation plan. Finally, we see WPP''s more ambitious tone on MandA, the arrival of a new CFO in a couple of weeks and a potential Kantar stake value crystallization as upside risks to our case.
We raise our EPS forecasts by 8% in 2024e and 12% in 2025e
Higher organic growth (from 1.9% to 3.5% in FY24e, from 2.1% to 3.4% in FY25e) and higher margins lead us to raise our EPS forecasts by 8% in 2024e and 12% in 2025e. Our 2023e forecasts are barely changed. Our new numbers sit c5% above consensus. We forecast a 10% 2023-25e EPS CAGR, the highest of the Top4 agencies. We raise our target price to 1,300p (from 965p). At our new TP, the shares would trade on 11x 2024e PE and 9x 2024e EV/EBITA.
We upgrade WPP to Outperform (from Neutral) - WPP is our top pick for the next 12 months
WPP trades on a 15% discount to peers on EV/EBITA 24e, which in our view is not justified in the...
