Analyst Note| Ali Mogharabi |
WPP held its analyst day virtual conference during which it provided top- and bottom-line guidance for this year and 2021, all of which exceeded our expectations. The firm’s long-term organic growth guidance was also surprisingly above our expectations. WPP continues to focus more on digital marketing offerings (including e-commerce), and streamlining its media, technology, data analytics, and creative services. As it continues to improve operating efficiency, the firm plans to reinvest most of its cost savings into growth, mainly in its technology and commerce offerings. The firm will also resume its share buyback program, which it had initiated after the sale of Kantar but was halted due to the coronavirus pandemic earlier this year. In addition, WPP has planned to consistently grow its dividend as it will maintain a 40% payout ratio. Overall, we are pleased with the firm’s strategy as it continues to shift its offerings more toward digital, which will reduce WPP’s dependency on declining traditional media. While we adjusted our projections, our fair value estimate of this narrow-moat name remains at GBX 1,300. The stock has increased nearly 69% since its 12-month lows in late March, but it remains attractive as it is trading at only 0.63 times our fair value estimate.