Analysts react to WPP's share slide

 
Helen Cahill
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Sorrell's ad group has warned about slowing economic growth (Source: Getty)

WPP posted record revenues in 2016, but the advertising giant's shares fell by more than seven per cent this morning after it warned that economic growth in the year ahead would be "tepid".

The media group headed up by Sir Martin Sorrell set a conservative growth estimate of two per cent for revenue and net sales in the year ahead. The City had been expecting growth of three per cent for 2017, only a slight reduction on the 3.1 per cent growth WPP achieved last year.

Read more: WPP shares slump six per cent after it gives cautious outlook for 2017

Steve Clayton, fund manager at Hargreaves Lansdown, said: "The market's focus is on their downbeat outlook for the coming year. The fourth quarter was the weakest quarter of the year, and this has carried on into the new year.

"WPP is a hugely successful business, but it is feeling the effect of slower growth in the UK and USA, where clients are spending less. When you are the size of WPP, with revenues of £14bn a year, you can’t but notice the broader state of the economy."

In addition to the gloomy forecast for the year, WPP also said this morning that it had a slow start to the year, with net sales growth falling to just 1.2 per cent.

"This suggests a worrying continuation of what it terms a “tepid” macro environment, clients “grinding it out in a highly competitive game” and a cooling of positive tailwinds," said Mike van Dulken, head of research at Accendo Markets. "Not really what investors want to hear when shares are just shy of all-time highs."

Read more: Sorrell's WPP makes French investment as part of Brexit vote push in Europe

Neil Wilson, senior market analyst at ETX Capital, said that Sorrell's warning of "tepid" growth was at odds with the current rises in the equity markets in the US, which he dubbed "Trump trade". He said Sorrell was being "overly cautious".

"Brexit is in there – political uncertainty in Europe is a big factor in the cautionary outlook, while currency tailwinds has delivered a big helping hand to revenues," Wilson said. "These should fade by the second half of this year, which may in part be a reason for the caution."

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