WPP Plc - Good Start to the Year 2020, with Robust Cash Flow and Liquidity Positioning

WPP Plc (LON: WPP) is a FTSE 100-listed communications services Group. The Company extends the services to some of the world's leading national and multinational clients.

On 27 August 2020, the Company will announce the interim results for the six months ended 30 June 2020.

Recent News

On 17 June 2020, the Group announced Keith Weed purchased 3,121 equity shares at a price of £6.4032 per share. Following the transaction, Keith Weed's total shareholding was 5,282 ordinary shares in WPP.

Q1 FY20 Trading Update (as on 29 April 2020) – Performance Comparison Against Q1 FY19

For the first quarter of 2020, the Company’s reported revenue was down by 4.9%, while LFL (like-for-like) revenue reduced by 3.8%. The Group witnessed a good start (Jan-Feb ex Greater China up 0.4%) to the year, with March impacted by COVID-19 (down 7.9%). In services, the public relations (PR), marketing technology, ecommerce, and production capabilities are less impacted, but in some cases, it has shown greater demand. The Company has taken action to mitigate COVID-19 impact on profit and cash flow. It had suspended the share buyback programme and 2019 final dividend. According to the balance sheet, the business had robust liquidity, with a £4.4 billion of cash and undrawn facilities and an average net debt of £2.1 billion.

Share Price Performance


1-Year Chart as on 14 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

WPP Plc’s shares were trading at GBX 598.40 on 14 July 2020 (before the market close at 12:42 PM GMT+1), up by 0.84% against the last day closing price. Stock 52 week High and Low were GBX 1,085.50 and GBX 450.00, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology



Key Risks
The Group operates in a highly competitive market, where the risk of losing a client to competitors is quite high. The resurgence of Covid-19 cases can cause another round of business disruption.

Conclusion
During the first quarter, the Company has also won $1 billion of new business (including creative duties for Discover). The Group is setting out a new plan to return the business to sustainable growth.  Moreover, by the end of 2021, the Company will implement the three-year strategic plan, which will help the business to grow. Overall, WPP is looking forward to making significant investments to strengthen the balance sheet.

Based on the decent fundamental and technical indicators with support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 598.40 (as on 14 July 2020, before the market close at 12:42 PM GMT+1) with lower double-digit upside potential based on 13.10x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Informa Plc - Well-Positioned for Long-term Investment

FTSE 100 listed Informa Plc (LON: INF) is the United Kingdom-based Media Company. It is engaged in events, exhibitions, scholarly publishing, and information services.

Trading Update (as on 12 June 2020)

The Group provided an update on trading along with the Annual General Meeting (AGM). In this update, the Company outlined further progress with the COVID-19 Action Plan and an ongoing focus on managing the customers for value creation and long-term growth. The Group’s Subscriptions-related businesses were trading well, and Informa Intelligence was delivering steady growth. The Group’s Pharma Intelligence business was performing well in drug development brands and clinical trials. The journal subscriptions business remained robust with steady growth and consistent renewals. The Company’s book business witnessed increased disruptions due to supply-chain and product availability issues.
INF’s Events-related businesses contributed around 65% of total revenue in FY19 and have not been performing well due to COVID-19. In April 2020, the Company raised £1 billion of equity to strengthen the balance sheet and increase focus on long-term goals. The Group has taken cost reduction measures to tackle the uncertain times.

Share Price Performance


 1-Year Chart as on 14 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Informa Plc’s shares were trading at GBX 429.20 on 14 July 2020 (before the market close at 12:50 PM GMT+1), down by 1.78% against the last day closing price. Stock 52 week High and Low were GBX 900.80 and GBX 326.70, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


Key Risks

The business condition has already jolted across the board, and Company is cutting and suspending expenses to maintain adequate liquidity. The Group’s performance is also subject to fluctuations and volatility arising from the prevailing COVID-19 pandemic.

Conclusion

The Group has introduced COVID-19 Action Plan, which is assisting in preserving strength and building stability in the first half of 2020. The Company’s subscription-based, information and specialist knowledge business shown decent growth in H1 FY20 and are likely to grow further and without any material impact due to Covid-19.

From the perspective of the media market, artificial intelligence is entering a new growth phase, due to the convergence of several trends. Also, advertising companies have reported some recovery over a month period after a steep plunge.
Based on the decent fundamental and technical indicators with support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 429.20 (as on 14 July 2020, before the market close at 12:50 PM GMT+1) with single-digit upside potential based on 25.08x Price/ NTM Earnings (approx.) on FY20E Earnings Per Share (approx.).
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer/Industry information have been taken from Refinitiv, Thomson Reuters.

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