WPP''s Q3 23 came below estimates (-0.6% org. growth) due to persistent weakness in tech clients, US and China. The group cut its FY 23 guidance and now assumes +0.5%/+1.0% organic sales growth (implies c.-1.0%/+0.5% in Q4) and c.14.65% headline operating margin. On the other hand, the group announced at lease GBP100m of additional cost savings (full impact in FY 2025) linked to creative agency mergers and Group M simplification. The group should update on its mid-term strategy during a Capital Market Day in January 2024. We have cut our 2023e EPS estimates by c-4% and reduce our price target to 750p (from 840p).
A soft Q3 impacted by weakness in tech clients, US and China
WPP Q3 23 sales came 2% below estimates with organic sales down -0.6% (vs VA cons. +1.5%, WPP cons. +1.0%). Decent performance in Europe (org. growth +1.1%) and Row (org. growth +2.8%) was offset by weakness in North America (org. growth -4.1%).
FY guidance implies persistent weakness in Q4
WPP FY 23 organic sales guidance (+0.5/+1.0%) implies Q4 23 organic sales between c.-1% and +0.5%. The bottom end factors in continuation of the trend seen in Q3. The higher end assumes improved performance at Group M. Post revision, we model -0.9% organic sales in Q4 and +0.7% for the FY. Looking at 2024, no guidance was provided but the CFO recognizes the start to the year will be weaker than in 2023 and net new business should be a small headwind. On the other hand, tech client weakness should be annualized by Q2 2024 and strategic initiatives (VML, Group M) should drive growth. We model 2.2% organic sales growth in 2024 (vs +2.9% before).
Conf call main highlights
(1) VML creation: Mgt expects revenue synergies through scale benefits and complementary offers. Restructuring costs are expected to be GBP100m. (2) Group M: Simplification along with improved execution should help Group M improve momentum in the US. (3) Mid-term margin: Previous guidance stands for the moment, and should...
