WPP PLC

WPP PLC (WPP) is a London-headquartered holding company, which is a world leader in communications services and comprises companies in a range of disciplines which offers national and multinational clients a comprehensive range of communications services. The operations of the group are organised into four reportable segments, namely Global Integrated Agencies, Data Investment Management, Public Relations, and Specialist Agencies – which includes WPP Digital and direct, digital & interactive. The group has operations in more than 112 countries and is a constituent of the FTSE 100 index.

Recent Development
The company on 1 October announced the appointment of John Rogers as Chief Financial Officer of the group, succeeding Group Finance Director Paul Richardson.

Financial Highlights (H1 2019, in £m)

 (Source: Company Filings)

Net new business billings worth £2.934 billionwere won by the group in the first half of the year, and reported billings were down by 0.5%, and down by 2.0% in constant currency, to £26.533 billion. Reported revenue was up by 1.6% to £7.616 billion. Reported gross profit declined by 3.8% to £1.225 billion from £1.274 billion in the prior year, with a fall of 5.1% on a constant currency basis. Headline operating profit was £730 million, which was down by 6.8%, and down by 8.0% in constant currency, while reported operating profit declined by 20.1% to £673 million from £841.9 million in H1 2018, with a fall of 21% in constant currency. Headline operating margin declined by 0.8 margin points to 11.9%, which represented a decrease of 1.2 margin points on a like-for-like basis and by 0.8 margin points in constant currency, while headline EBITDA was down by 7.7% to £875 million, down 8.9% in constant currency, which was in line with the top-line numbers. Reported profit before interest and taxation declined by 20% to £681 million from £851.3 million in H1 2018, with a fall of 20.9% on constant currency basis, while headline profit before interest and taxation was down by 8.5% to £751 million from £821 million, down 9.6% in constant currency. Reported profit before tax was down by 43.5% to £478 million from £846 million in the previous year, and down 44.1% in constant currency, while headline profit before tax declined by 17.6% to £605 million from £735 million and was down by 18.4% in constant currency. Diluted reported earnings per share was down by 53.6% to 24.8p from 53.4p in the prior year and by 54.3% in constant currency, while diluted headline earnings per share declined by 19.7% to 34.2p from 42.6p in the previous year, with a 20.9% decline in constant currency basis.

Share Price Commentary

Daily Chart as at 10-October-19, before the market closed (Source: Thomson Reuters)
 
On 10 October 2019, at the time of writing (before the market closed, GMT 9:27 am), WPP shares were trading at GBX 964.20, down by 0.16 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,100/GBX 791.00. The company's stock beta was 1.20, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £12.20 billion, with a dividend yield of 6.21 per cent.

Conclusion
In FY 2019 guidance, LFL revenue less pass-through costs will decrease by 1.5 per cent to 2 per cent. In 2021, the company’s organic growth will be in line with the peers, free cash flow conversion to be in the range of 80%-90% and headline operating margin, before IFRS impact, of at least 15%. The company is setting out a new plan to return the business to its sustainable growth, and at the end of 2021, the company will implement its three-year strategic plan, which will help the business to grow, which includes disposals, mergers, and simplification of the group structure. The company had shown decent top-line growth in the current period, and whilethere was some weakness in the healthcare division and a mixed performance in customer-packaged goods, it reported a decent growth from customers in the technology sector. The risk in recent time has augmented due to volatility caused by Brexit in the UK and Europe. The group looks to address its performance in the United States and improve results.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 965.80 (as on 9 October 2019).
 

Bank of Georgia Group PLC

Bank of Georgia Group PLC (BGEO) is a leading universal Georgian bank, which is headquartered in London and operates retail banking & payment services, wealth management operations and corporate investment banking in Georgia and BNB (banking operations in Belarus). The group is the leading retail bank in Georgia with a client base of over 2.4 million and caters to 1,528 individuals from 76 countries globally under its wealth management business. The BNB business facilitates individuals and businesses with banking services in the Belarus region and its corporate investment banking business presently accommodate over 2,500 business from multiple sectors such as energy, tourism, trade and others.

Recent Development
The company on 24 September 2019 announced the launch of Optimo, which would enable businesses to easily access their most recent data on sales transactions, revenues, inventory, and profitability, and is designed to address the needs of micro, small and medium sized enterprises in optimising their day-to-day operations.

Financial Highlights (H1 2019, in GEL thousands)
As net interest margin over the year declined to 5.4% from 5.6%in the prior year, net interest income decreased to GEL 364 million fromGEL 366 million in H1 FY18. However, operating income of GEL 516m rose by 5.8% from GEL 487m in H1 2018, while it rose to GEL 257.3 million in 2Q19. Driven by a strong increase in fees and commission income from guarantees and letters of credit and strong performance in the settlement operations, net fee and commission income reached GEL 43.3 million in 2Q19 and GEL 85.4 million in 1H19. Due to higher salaries and other employee benefits as a result of increased investment in IT related resources, operating expenses adjusted for one-off employee costs increased by 5.5% over the year to GEL 190.5 million in 1H19. Profit adjusted for one-off costs was reported at GEL 111.1 million in 2Q19 and GEL 223.4 million in the first half of 2019, while total profit rose by 36.9% to GEL 209m in the current period and GEL 107m in the second quarter, representing a growth of 5.1%.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

Daily Chart as at 10-October-19, before the market closed (Source: Thomson Reuters)

 
On 10 October 2019, at the time of writing (before the market closed, GMT 12:19 pm), BGEO shares were trading at GBX 1,260, up by 0.56 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,781.80/GBX 1,220. The company's stock beta was 0.65, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £616.75 million, with a dividend yield of 5.76 per cent.

Conclusion
During the period, loan book growth reached 30.5% year on year and 10.5% quarter on quarterat 30 June 2019, and the Basel III Tier 1 and Total Capital Adequacy ratios stood at 13.3% and 16.7%, indicating a strong capital position. The company has actively continued the further development of its digital strategy and the Georgian economy has continued to perform well, with a growth of 5% year-on-year in the first eight months of 2019, with a decent growth expected for the year. The company’s cost management techniques have benefited both Retail and Corporate Investment Banking businesses.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 1,253 (as on 09 October 2019) with single-digit upside potential based on 4.44x NTM Price/Earnings (approx.) on FY19E Earnings per share (approx.).

*Peers of the company are Bank Sankt-Peterburg PAO, TBC Bank Group PLC, Halyk Bank AO and Sberbank Rossii PAO.
*All forecasted figures and peers have been taken from Thomson Reuters.
*The Buy recommendation is valid for the current price as covered in the report (as on 10-October-19).

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