WPP Plc – Decent Cash Flow and Liquidity Positioning

WPP Plc (LON: WPP) is a communications services group, and it extends its services to some of the world's leading national and multinational clients.

Recent News
On 11th June 2020, WPP announced the retirement of Solomon (Sol) Trujillo, Daniela Riccardi and Sir John Hood from the board effective from 10th June 2020.

On 11^th May 2020, WPP announced the selection of Angela Ahrendts DBEas Director Non-Executive to the board.

First Quarter Trading Update (as on 29th April 2020) – Actions Plans Unveiled to Minimise Costs
The Company’s reported revenue for the first half of 2020 was down by 4.9%, while LFL (like-for-like) revenue reduced by 3.8%. The Group has shown a good start (Jan-Feb ex Greater China up 0.4 per cent) to the year, with March impacted by COVID-19 (down 7.9 per cent). WPP has an excellent net new business, with $1 billion won in the first quarter of 2020 and no significant losses for YTD. The Company has taken action to mitigate COVID-19 impact on profit and cash flow. It has suspended the share buyback programme and 2019 final dividend. In China, offices back to approximately 90 per cent occupancy with rapid recovery in economic activity. The business has delivered robust liquidity, with an average net debt of £2.1 billion and £4.4 billion of cash and undrawn facilities.

Share Price Performance

Daily Chart as of June 12^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

WPP Plc shares were trading at GBX 626.40 at the time of writing before the market close (at 8:48 AM GMT+1) on 12^th June 2020 and were up by 0.10% versus the previous day closing price. Stock's 52 weeks High is GBX 1,085.50 and Low is GBX 450.00.

From the technical standpoint, 14-day RSI is currently hovering in an oversold zone and carry the potential to trigger an upside bump in the stock price.

Valuation Methodology

*Peers: Relx Plc, ITV Plc, Pearson Plc and Daily Mail and General Trust Plc.

Growth Catalysts
The company’s performance in the second half of the financial year 2019 improved significantly, and WPP entered 2020 with positive momentum. WPP is looking forward to making significant investments to strengthen its balance sheet.

Conclusion
In January and February (excluding China), the company has seen decent growth. But the business started to be materially impacted by Coronavirus outbreak in March. In the first quarter, the company has also won $1 billion of new business (including creative duties for Discover), the media accounts for Hasbro and Novo Nordisk, and the global integrated Intel account. 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 Group looks to address its performance in the United States and improve results.

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 price of GBX 614.26 (as on 12^th June 2020, before the market close at 8:05 AM GMT+1) with high single-digit upside potential based on 12.30x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Informa Plc - Well-Positioned B2B Brands for Future Growth

Informa Plc (LON: INF) is the United Kingdom-based media company. It is engaged in events, exhibitions, scholarly publishing and information services.

AGM Trading Update with Continued Strength and Stability
On 12^th June 2020, Informa released an update on the trading performance. The trading at current period is varied from region to region as countries steadily lifting the lockdown. The group’s Subscriptions-related businesses are trading well, and Informa Intelligence is delivering steady growth. The Group’s Pharma Intelligence business is 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 contribute around 65 per cent of total revenue and have not been performing well due to covid-19. The Group is planning to run some events in China, while in the US, it is assuming no physical event before September hence expect lower profitability. Informa, along withassociation, suppliers and other leading organisers have set enhanced measures for bio-safety and hygiene at events. INF has taken measures to reduce costs and preserve cash to tackle the uncertain times and postponed and rescheduled all the events. The Company raised GBP 1 billion of equity in April to strengthen the balance sheet and increase focus on long-term goals.

Share Price Performance

Daily Chart as of June 12^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Informa Plc shares were trading at GBX 474.20 at the time of writing before the market close (at 9:38 AM GMT+1) on 12^th June 2020 and were up by 9.21% versus the previous day closing price. Stock's 52 weeks High is GBX 900.80 and Low is GBX 326.70.

From the technical standpoint, its shares were trading well above its short-term support level of a 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

 *Peers: Ferguson Plc, Ashtead Group Plc, Pearson Plc and Goco Group Plc.

Growth Catalysts
Informa PLC has shown growth in turnover and profitability for the consecutive six years. The Company continues to grow consistently in Events and Exhibitions despite headwinds in its Fashion and Middle East businesses.

Conclusion
In 2019, both the top-line and the bottom-line performance improved for the period. In many individual markets, the company operates close to its customers, which provides a depth and breadth to the business with over 450 B2B brands. The company’s subscription-based, information and specialist knowledge business shown decent growth in H1 FY2020 and are likely to grow further and without any material impact due to Covid-19. Hence, it is expected to generate lucrative cash flows. Moreover, the group has introduced COVID-19 Action Plan, which is assisting in preserving strength and building stability in the first half of disruption in 2020. From the perspective of the media market, artificial intelligence is entering a new growth phase, due to the convergence of several trends. In April, INF raised GBP 1 billion through equity, which will strengthen the balance sheet.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current price of GBX 433.70 (as on 12^th June 2020, before the market close at 8:00 AM GMT+1) with lower double-digit upside potential based on 20.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Pearson Plc - A Multinational Media Company with Well-Positioned Balance Sheet

Pearson Plc (LON: PSON) is operating as a multinational education and publishing company, catering the private and public institutions, the governments, and individual learners.

Trading Update with Improved Digital Growth (Q1 Financial Year 2020)
The Group has revised its future expectations and reported a decline of 5 per cent in the revenue versus the previous year due to Covid-19 outbreak. The Company experience disruption in its International divisions and Global Assessment due to the closure of testing centres and revenue declined by 10 per cent and 3 per cent, respectively. The Company’s revenue from Global Online Learning surged by 6 per cent for the period. The company, with GBP 0.8 billion of liquidity, has a strong financial position at the end of March and secured an additional Revolving Credit Facility.

Share Price Performance

Daily Chart as of June 12^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Pearson Plc shares were trading at GBX 576.00 at the time of writing before the market close (at 10:32 AM GMT+1) on 12^th June 2020 and were down by 12.28% versus the previous day closing price. Stock's 52 weeks High is GBX 951.20 and Low is GBX 412.08.

From the technical standpoint, its shares were trading well above its short-term support level of a 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

*Peers: WPP Plc, Future Plc, Informa Plc and Ascential Plc.

Growth Catalysts
The group has a robust balance sheet with a strong financial position. The company continue to make an investment in the Pearson Learning Platform, which will help the company to increase its operational and financial performance in future.

Conclusion
In the first quarter of the financial year 2020, the group revised its guidance for FY2020 and witnessed a decline in the revenue with an increase in net debt. The group’s business has been diversified into multiple geographies and has a strong balance sheet and adequate liquidity. The group’s 2020 product road map remained on track and continuing to make an investment in the Pearson Learning Platform. The effective measures are taken by the company to protect its financial position and reduce its costs. The group witnessed an increase in the online learning business and continue to make an investment to improve it further for future growth. The group continue to monitor the impact of COVID-19 and will take decisions to safeguard the interest of shareholders. The company’s board is confident in its long-term strategy and is confident to become a global leader in the online learning market.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 544.29 (as on 12^th June 2020, before the market close, 7:38 AM GMT+1) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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