March 1, 2019 / 7:19 AM / in 3 months

WPP shares stage relief rally after better than feared outlook

LONDON (Reuters) - WPP gained some respite on Friday as the world’s biggest advertising firm delivered results and forecasts that were not as bad as feared after a year of turmoil, lifting its shares.

Rival Publicis alarmed investors with a weak showing last month and WPP warned that its underlying 2019 net sales would fall by up to 2 percent, after dropping 0.4 percent in 2018.

However, traders and analysts said that was to be welcomed after a 12 month period in which the British group lost its founder and boss Martin Sorrell, 40 percent of its market value and several of its biggest clients.

Shares in the group rose 7.5 percent in early trading, more than recouping the losses it suffered when Publicis spooked the market on Feb. 7.

“It’s early days in what we need to do but I would say the initial signs are promising,” Chief Executive and company veteran Mark Read told Reuters.

“We are at the beginning of a three-year turnaround plan, but WPP’s new positioning as a creative transformation company with stronger, more integrated, more tech-enabled agencies is already proving effective, having driven several of our recent new business successes.”

Read said that the group would see particularly strong headwinds in the first half of 2019, with the whole year expected to be down between 1.5 and 2 percent. Under his plan he hopes to bring WPP back in line with peers by the end of 2021.

While Publicis has struggled, posting a sharp drop off in trading in the fourth quarter, U.S. rivals Omnicom and IPG have performed strongly.

WPP is facing its toughest challenge in the United States, where net sales fell by 4.2 percent in 2018.

Analysts said the 2019 forecast, including a 100 basis point drop in the margin, was better than feared.

MAJOR OVERHAUL

WPP, the owner of agencies including JWT, Finsbury and Ogilvy, is in the middle of an overhaul launched by Read following several profit warnings in 2017 and 2018.

Clients have complained that WPP, in 112 countries, is too complex due to its holding company structure where multiple networks, agencies and businesses all compete with each other to win work, meaning clients often deal with hundreds of people across the group to get one service.

It is now investing to hire new creative staff while merging agencies and cutting jobs and costs.

WPP said it has completed 70 of the 100 planned office mergers and shut 57 of the 80 offices that will close. Around 2,650 of 3,500 planned redundancies have been launched.

It has also made 36 disposals, helping to strengthen its balance sheet. It gave no further update on its plan to sell a stake in its data analytics group Kantar.

WPP has been forced to act by a change in the dynamics of the industry, shaken up by the presence of Facebook and Google, and consultants such as Deloitte, which have affected the way clients want to work with their advertising agencies.

Read said the group had seen some early success after offering clients a more joined up offering, including a contract to handle Volkswagen’s creative work in North America.

FILE PHOTO: Mark Read, Co-Chief Operating Officer of advertising agency WPP leaves following their AGM in London, Britain, June 13, 2018. REUTERS/Toby Melville/File Photo

It also won a contract to handle creative campaigns and content for GSK’s Panadol brand, after it formed a bespoke team made up of staff from across its different pr, creative and digital agencies.

“We think WPP’s shares represent value long term and that, for those investors prepared to wait ... the shares could offer considerable upside,” Liberum analyst Ian Whittaker said.

“The plans ... seem more than achievable and, with the 2019 impact, not being as negative as feared, we would expect WPP shares to start to benefit from a re-rating,” he added.

Reporting by Kate Holton; Editing by Alistair Smout and Alexander Smith

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