Back in 2017 WPP hit a dizzy market value iof £23bn, today it’s £4.38bn. A bargain, surely, for someone. With debt taken into account and a buyout premium it would be anyone’s for £8bn, about a third of its 2017 value.
Analysts and others have tipped it as a recovery stock for years: it enjoys substantial revenues (albeit under pressure); is profitable (although not as much as it was) and pays a chunky dividend, albeit recently halved. Such companies can be turned around and the profit can be sopectacular. WPP still has a huge client footprint and some decent brands, although outgoing CEO Mark Read’s series of internal mergers have reduced these, making a break-up bid less likely.
It can still win business: this week it won $186m Mastercard global media from Carat – not a game changer as Mars was (recently departed) but a sign it’s still in the game.
But there seems to be little or no interest in the company. Hard to tell, of course. In the not so recent past the share price would move as buyers circled then bought a stake in the company to make the takeover easier. These days, though, private equity companies bid out of the blue for the whole lot.
And P/E companies, just like ad holding companies, are having a tougher time. P/E is a game of pass the parcel: invest for a while and then sell it on for a premium. But higher interest rates have made that game, using borrowed money, much riskier.
Underlying this is the fear that ad holding companies have had their day although Publicis would seem to refute this. But Publicis shares are flirting with a year low, possibly in sympathy with WPP. In a world dominated by the social media platforms and AI they’re hardly the coming thing. However it’s worth noting that AI stocks are currently taking a powder and converting these vast investments into profit is proving stickier than many thought. WPP, too, is currently betting big on AI.
Often with big bids (and WPP would still be a big deal) it takes one likely buyer to emerge to flush out others. Then the target company will magically change from a bundle of possible trouble to a means of preventing someone else grabbing a dominant market share. And the price rises exponentially.
So we shouldn’t write off a move for WPP just yet. As well as P/E the likes of Accenture and Publicis will have done their sums. Analyst Brian Wieser once memorably described the big ad groups as cockroaches, unloved by most but capable of withstanding seismic changes by adapting. Is anyone brave enough to test this with WPP?
Believe it was Rishad T who claimed Agencies were coackroaches first. Have always loved it as it is true. People underestimate agencies at their peril, still many many smart people in them.