WPP Q3 24 trend improved sequentially (OSG +0.5% vs -1.0% in H1 24) helped by better momentum for Media business. We expect further improvement of OSG momentum in the next quarters, but the magnitude could be limited given neutral net new business effect entering 2025, persistent weakness in China and a limited rebound to tech client spending. Operating leverage and cost reduction should support margin improvement in the next few years, but this should be partly offset by sustained reinvestment in our view. We think WPP operating performance should remain below Publicis/OMC. In those conditions, we think current valuation multiples discount (c.-10% on EV/EBIT 25) is justified. We revise our estimates by c.+1% (better OSG, FX) and price target to p790 (vs p750). Stay Neutral.
Q3 24 OSG better than expected thanks to Media (GroupM)
Q3 24 OSG came at +0.5% (c.+70bp beat vs cons.) helped by improving trends at GroupM (+4.8% OSG from a relative low base). Creativity remained soft with -3.1% organic sales decline impacted by contract loss (Pfizer). PR division OSG was stable with growth at FGS offset by Burson.
Group reiterates FY 24 guidance: OSG -1.0%/0.0%, 0/+20bp margin improvement (incl. FX)
The FY guidance implies Q4 24 organic sales between -2% and +1%. We think the difference between the low and high ends of guidance mostly depends on the macro environment, momentum in China and tech client spending. Post revision, we model +0.2% in Q4 24 and -0.4% for the FY. We assume +16bp adj. EBIT margin improvement to 14.9%.
Further improvement in 2025 but the recovery will likely be incremental
Management is encouraged by recent business wins (notably Amazon media EU/APAC) but recognizes the net new business impact for 2025 is neutral at the moment. 2025 Headline EBIT margin should benefit from cost reduction, but this should be offset by FGS Global disposal (c.-20bp) and FX headwind (c.-10bp at current rate). Post revision, we model +1.5% OSG and...
