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WPP Remains Undervalued

The partial sale of its Kantar business has no effect on our valuation.

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Advertising holding company  WPP (WPP) announced that it will sell part of its data and research business, Kantar, to Bain Capital Private Equity for a total enterprise value of GBP 3.2 billion. While this is below the GBP 4 billion valuation we had estimated for Kantar, our fair value estimate for WPP is not affected. Although WPP’s share price has increased more than 11% year to date, we continue to view this narrow-moat name as attractive, and it remains one of our best ideas.

WPP and Bain have agreed that WPP will retain a 40% stake in Kantar and will continue to have access to Kantar data to design and launch higher-return-on-investment ad campaigns for clients. The transaction allows WPP to not only deleverage but also have a bit more flexibility to focus on further integration of technology and creativity, which we think remains the main differentiator in the advertising space. With a healthier balance sheet, WPP shareholders will benefit from the further assurance of no dividend cuts during the company’s current restructuring and turnaround phase. WPP also plans to use some of the cash received to reward shareholders via share buybacks and/or a special dividend. The transaction is likely to close in early 2020.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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