Research: TMT
WPP’s capital markets day (CMD) focused on the combination of creativity and AI at scale and how these can be leveraged to boost clients’ businesses. Outline Q423 performance figures were given, along with updated forward guidance, including on restructuring costs and potential payback. We expect market expectations to be broadly unchanged. The overarching narrative of consolidation and simplification, common data platforms and standardised reporting, is coherent and supports the projected margin expansion. To be really convincing, though, top-line growth needs to exceed the 3% indicated, which depends on better performances in both Media and Creative. The rating remains undemanding.
WPP |
Harnessing AI, data and platform
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31 January 2024 |
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WPP’s capital markets day (CMD) focused on the combination of creativity and AI at scale and how these can be leveraged to boost clients’ businesses. Outline Q423 performance figures were given, along with updated forward guidance, including on restructuring costs and potential payback. We expect market expectations to be broadly unchanged. The overarching narrative of consolidation and simplification, common data platforms and standardised reporting, is coherent and supports the projected margin expansion. To be really convincing, though, top-line growth needs to exceed the 3% indicated, which depends on better performances in both Media and Creative. The rating remains undemanding.
AI as an effective tool, not as a panacea
At the heart of the CMD presentations was the sense of AI giving new opportunities to improve efficiency and effectiveness, enhancing the output and freeing up people from mundane tasks. WPP has been using AI in various parts of the business for up to 10 years, accelerated through the acquisition of Satalia in 2021. This is all now really starting to have a commercial impact, with the WPP Open operating system and platform now rolling out across the group, with two important clients, Nestlé and L’Oréal, already fully migrated onto it. The built-in flexibility means that client data and workflows can be designed to suit the client rather than them needing to adapt, a level of integration that should help with retention down the line. On the Media offering, increasing use of AI should facilitate more effective buying across the digital piece, with the benefits shared with clients.
Simplification to improve efficiency
Since 2018, WPP has consolidated its operations into six market-facing agency networks (fewer would compromise its ability to work for competing clients). Given the scale of the operations, this has been a massive undertaking and there is further to go, in terms of front office commercial delivery and back office integration. The latest moves are designed to save c £125m by FY25, at a similar level of cost and with 40–50% of the savings to be released in FY24. This should help lift the FY24 operating margin to the 15.0–15.2% target, with the medium-term target (three to five years) being 16.0–17.0%, predicated on 3%+ top-line organic growth.
Valuation discount to peers
The 3% top-line growth target looks cautious compared with peers. That is reflected in the rating differential; WPP’s FY24e P/E of 8.2x comparing to peers on 12.2x.
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Consensus estimates
Source: Refinitiv. *Adjusted operating profit and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: TMT
IP Group has released its year-end update, indicating that its end-2023 NAV per share will be in the range of 111p to 117p. This would represent a NAV total return decline of c 7–12% versus end-June 2023 and 11–16% versus end-2022. Management highlighted that this was driven by a further softening of valuations of early-stage companies in Q423. That said, management indicated that many of IP Group’s leading portfolio companies continued to make strong progress and it expects some major inflection points in 2024. IP Group’s balance sheet remains robust with gross cash and deposits of £227m at end-2023 (vs £250m at end-June 2023). IP Group expects to release its FY23 results on 13 March 2024.