WPP PLC

WPP PLC (LON: WPP) is a FTSE 100 listed creative transformation entity that provides services related to public relations, advertising, technology, and commerce.

In October 2021, WPP expects to release its Q3 FY21’s results.

Investment Rationale – EXPENSIVE at GBX 972.40

• The resurgence in the Covid-19 cases due to the delta variant can derail the economic recovery, while the markets are already dented with inflationary concerns, and early asset tapering the US Federal Reserve.
• The economic downturn and market volatility can impact the level of activity in its end markets.
• In H1 FY21, the Company incurred £19.7 million as restructuring costs in relation to COVID-19.
• From a technical standpoint, the stock price is hovering above the middle Bollinger Band, reflecting an overbought position. Moreover, the upside is skeptical since the stock is trading close to its 52-week high.
• In terms of profitability margins, the Company has shown weak profitability margins. In H1 FY21, gross margin, EBITDA margin and net margin remained significantly below the industry median of 65.8%, 22.9%. and 6.9%, respectively.

Financial Highlight for the half year ended 30 June 2021 (as on 5 August 2021)

 (Source: Company Website)

• WPP reported solid first-half performance across all its businesses as activity level has returned to 2019 level.
• For H2 FY21, the Company has planned a share buyback plan for £350 million.
• On the back of good working capital management, net debt also reduced to £1.5 billion at 30 June 2021.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Conclusion

Based on the weak profitability against industry, overstrained share prices, macroeconomic uncertainties, Covid-19 induced restricting costs, we have given an “EXPENSIVE” recommendation on WPP PLC at the closing price of around GBX 972.40 (as on 20 August 2021).

Shaftesbury PLC

Shaftesbury PLC (LON: SHB) is a FTSE 250 listed real estate investment trusts that has significant investments in London's West End.

Investment Rationale – EXPENSIVE at GBX 621.50

• The likelihood of economic shock spurred by the resurgence of Covid-19 cases with Delta variant and inflationary market conditions can impact the stock’s overstrained price position.
• As the government started to taper the stamp duty holiday from the June 2021 end, house prices have fallen for the first time in 2021.
• In July 2021, the shortage of building materials and contractors has dragged the UK construction purchasing managers' index (PMI) to the lowest since February 2021.
• From a technical standpoint, the stock price is hovering close to the upper Bollinger Band, while 14-day RSI (~54.75) is moving towards the overbought zone.
• On a forward 12-month basis, valuation multiples (EV/Sales, EV/EBITDA, Price/Cash Flow and Price/Earnings) of SHB are quite overvalued against the median of the Residential & Commercial REITs industry.

Financial Highlights (for the period 1 April 2021 to 20 August 2021, as on 23 August 2021)

 (Source: Company Website)

• Shaftesbury reported a significant reduction in vacancy since the available-to-let vacancy stood at 4.6% on 31 July 2021 against 8.4% on 31 March 2021.
• As on 30 June 2021, the available liquidity was £330.7 million.
• The weekly West End footfall has recovered to 50%-60% of pre-pandemic levels since staycation visitors have returned in growing numbers.

One Year Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group) 

Conclusion

Based on the rising market uncertainties, overvalued valuation multiples, negative technical stance, we have given an “EXPENSIVE” recommendation on Shaftesbury PLC at the closing market price of GBX 621.50 (as on 20 August 2021), while we look forward to reinvesting when short-term uncertainty fades away.

*The reference data in this report has been partly sourced from REFINITIV.

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