WPP Group will have little to advertise in results as its sector hits the rocks, analysts predict

Lucy White
Advertising Week Europe 2016 - Day 1
Sir Martin Sorrell had predicted 2017 would be a slow year for the group (Source: Getty)

Advertising group WPP might not be feeling so flashy after it releases its half year results on Wednesday, analysts are predicting, as fears over the future of the sector have wiped more than £4bn off the company's market value in recent months.

The advertising giant, headed by Sir Martin Sorrell, is expected to report near-flat organic revenue growth in the second quarter, missing the 0.5 per cent consensus.

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Morgan Stanley has also stirred the pot, saying last week that the group's two per cent target for full-year sales growth “looks aggressive”.

Analysts at the investment bank noted the first half “has been a tough environment” for advertising agencies such as WPP, with “disappointing US growth, mixed trends in China and weakness from the fast-moving consumer goods (FMCG) segment”.

According to Moran Stanley, WPP makes more than 30 per cent of its sales from FMCG companies.

The investment bank joins broker Shore Capital in its more pessimistic outlook for WPP Group. While Morgan Stanley lowered its target price from £19.75 to £19.30, Shore Capital downgraded its recommendation from “buy” to “hold” in June saying that the group's valuation looked “fair rather than cheap”.

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The drooping expectations have been prompted by continuing worries over the sustainability of advertising agencies. In June, media investment management company GroupM, part of WPP, slashed its growth expectations for the industry from a seven per cent increase in spending to a 4.1 per cent increase.

“Agencies are out of favour and there will be no sudden resolution to the market’s fears over procurement pressure, the challenge to the agency model from the rise of digital and data and the competitive pressure from consultancies,” said Morgan Stanley analysts, adding however that they did not think these factors would displace the core agency model.

Analysts at Liberum have been more hopeful, however, reiterating their “buy” recommendation earlier this month as Brian Lessor resigned as chief executive of GroupM in North America.

“While there may be some speculation as to why he left, we do not see the move as a sign that WPP is having problems,” the analysts said.

Liberum had also found solace the previous month in Unilever's first-half conference call. As one of WPP's largest clients, Unilever has significantly reduced its marketing spend in recent times. But in July, it suggested it might make “higher brand and marketing investment” in the latter half of the year.

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