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Strong Demand for WPP’s Services in Q3; FVE Maintained

We continue to view this narrow-moat stock as one of the most attractive among ad holding firms.

WPP WPP reported strong third-quarter revenue, beating FactSet consensus estimates as the economic recovery plus account wins and retentions, and the firm's investments in data and technology drove strong organic growth in all business segments and regions. Revenue is now above levels prior to the coronavirus pandemic. In our view, the continuing resurgence of brand advertising is driving organic growth for WPP and its peers, and is shielding them from the impact of Apple's policy changes. In addition, the supply chain and labor shortage issues are not applicable to all industries and their effects are likely only short term. Management increased its full-year organic growth and margin guidance and believes the firm has momentum going into 2022. We are maintaining our GBX 1,340 ($92) fair value estimate for WPP and continue to view this narrow-moat stock as one of the most attractive among ad holding firms. We also think the stock's current 2.5% dividend yield remains attractive. Net third-quarter revenue increased nearly 10% year over year, with impressive 15.7% organic growth, partially offset by headwinds from currencies and dispositions. Net revenue was also nearly 7% above third-quarter 2019, with all segments showing growth. Demand remained strong in media and creative services as WPP's global integrated agencies segment (83% of total net revenue) grew net revenue organically by 13.5%. Public relations' net revenue increased 16% and specialist agencies, seeing strong demand for brand consulting and a large contract win in Germany, grew 41.5%. Demand was also strong among WPP's clients across all sectors. All regions also generated double-digit organic net revenue growth, including WPP's largest markets: the U.S. (12.2%), U.K. (16.9%) and Western Europe (21.5%). Organic net revenue also displayed growth from 2019 levels in markets like the U.S., U.K., Germany, India, Canada, and Italy, while continued improvement was evident in China, Australia, Spain, and France.

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