WPP Plc
WPP Plc (WPP) is a British holding company headquartered in London, United Kingdom. The group is a world leader in communications services. The international advertising and marketing services group was established after Sir Martin Sorrell took a controlling stake in Wire and Plastic Products, a manufacturer of wire baskets and teapots, in 1985. Later, the company was renamed "WPP" and has now become the world leader in communications, experience, commerce and technology, and employs more than 130,000 personnel across 112 countries. The company's clients are the top companies of the world, including 369 of the Fortune Global 500. The group is listed on the London Stock Exchange and the New York Stock Exchange and is a constituent of FTSE 100 index.
 
Recent Development
The WPP had recently cut 3,500 jobs in order to revamp its current business operations. The action was taken by the group to make savings of £275 million per year after a decline of 40 per cent in the value of the company in the preceding 12 months.

Financial Results and Review – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
In the Financial year 2018, WPP Plc’s reported revenue was £15,602 million in the financial year ending December 2018, against £15,804 million in the financial year 2017. However, on a like-for-like basis, revenue increased by 0.8%. The full year like-for-like revenue less pass-through costs were down by 0.4%, ahead of guidance, at £12,827 million. North America which reported a continued weakness, with like-for-like revenue less pass-through costs declined by 4.2%, driven by difficulties in creative agencies, data investment management and healthcare. UK like-for-like revenue less pass-through costs were up by 0.2%, as media investment management and specialist communications businesses reported strong business while data investment management improved. The company reported strong performance in Western Continental Europe. Operating profit declined by 8.9% to £1,962 million in FY2018 as compared to £2,154 million in FY2017. The decline of 9.7% in profit before interest and tax and leading to a drop in PBIT margin of 120bps, was due to restructuring, transformation costs and goodwill impairment. The diluted earnings per share declined by 10.3% to 108 pence in FY2018 from 120.4 pence in FY2017, reflecting poor performance in headline numbers. The dividends per share remained flat over the year to 60p. The company has strengthened its balance sheet and streamlined its business through 36 disposals, which helped it to raise cash proceeds in 2018 worth £849 million.

Share Price Performance

Daily Chart as at Mar-25-19, before the market close(Source: Thomson Reuters)
 
On 25th March 2019, at the time of writing (before market close, GMT 9:21 AM), WPP plc shares were trading at GBX 814.00, down by 1.21 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,375.50/GBX 791.00. The outstanding market capitalisation was around £10.40 billion and a dividend yield of 7.28 per cent.
 
Valuation Methodology
 


Conclusion 
The strong performance from high growth geographical segments coupled with the group's focus on improving technology signifies a good prospect for the company. The company had implemented a three-year strategic plan which will help the business to grow. They will undergo mergers, disposals and simplification of the group structure as a part of the plan. Moreover, the company has started implementing a plan which will further reduce its costs and help it to report strong financials. Based on excellent future prospects supported by a healthy increase in marketing expenditure and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 824.00 (as on 22nd March 2019) with single-digit upside potential based on 6.9x NTM EV/EBITDA (approx.) on FY19E EBITDA.
 

Lloyds Banking Group Plc

Lloyds Banking Group Plc (LLOY) is a high street London based lender, offering a wide variety of banking and non-banking services primarily in the UK. Its services portfolio consists of current and savings accounts, credit and debit cards, short and long-term loans, unsecured loans, mortgages, protection, investment products, motor finance, bonds and syndicated loans. They are also engaged in offering wealth management services, capital market services, foreign exchange, private equity and leasing services. The company shares are traded at the London Stock Exchange and a part of the FTSE 100 benchmark index.

Financial Results and Review – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
The company reported net interest income of £13,396 million for the year ending December 2018 as compared to £10,912 million in 2017 for the same period.The company’s total income declined to £22,091 million in FY2018 as compared to £34,237 million in FY2017. There was a decrease of 35.5 per cent due to lower levels of client markets activity. In FY18, profit before tax surged by 13 per cent to £5,960 million against £5,275 million reported last year. Profit attributable to equity holders climbed by 24.4% during FY18 to £4,302 million from £3,457 million in FY17, due to the decrease in the tax expense charges and improvement in performance. The company’s basic earnings per share were 5.5 pence in FY2018 as compared to 4.4 pence in FY2017. Cash and balances at central banks dipped by 6.6 per cent to £54,663 million, down from £58,521 million a year ago, due to low maintenance in the balance sheet and lower performance in trading. In 2018, reported total assets were down by £13,584 million to £797,598 million against £811,182 million reported last year. Total equity excluding minority interest stood at £49,925 million for FY18, up by 4.6 per cent against its FY17 reported total equity. In FY 18, the total ordinary dividend per share reported at 3.21 pence.

Share Price Performance

Daily Chart as at Mar-25-19, before the market close(Source: Thomson Reuters)
 
On 25th March 2019, at the time of writing (before market close, GMT 9:44 AM), Lloyds Banking Group Plc shares were trading at GBX 62.07, down by 0.39 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 69.69/GBX 49.52. The outstanding market capitalisation was around £44.36 billion and a dividend yield of 5.15 per cent.

Valuation Methodology
 

 
Conclusion
The company will have to remain watchful from political and economic uncertainties around the world. Rising interest rate can help the company to improve its margins but can decrease demand for loan. There is strong support from the macroeconomic factors like improving employment rate and continuous improvement in GDP. The company has shown good financial performance in the current financial year. There had been an increase in both Top line and bottom-line performance.Based on the strong growth prospects of the company and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 62.31 (as on 22nd March 2019) with single-digit upside potential based on 1.1x NTM Price to Book value (approx.) on FY19E Book value.

*All forecasted figures and peers have been taken from Thomson Reuters.

*The buy recommendation is also valid for the current price as covered in the report (as on Mar-25-19).

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