WPP PLC

WPP PLC (WPP) is a London-headquartered holding company, which is a world leader in communications services and 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.

Third Quarter Trading Update (as on 25^th October 2019)
In Q3 FY19, the group’s reported revenue surged by 5.2 per cent (AER basis) to £3,291 million. On a year to date basis, the company’s reported revenue rose by 2.8 per cent (AER basis) to £9,659 million. The group saw improvements in the main markets and sectors in the third quarter of 2019.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Reports, Company Website)

Net new business billings worth $2.934 billion were 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. 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. Diluted reported earnings per share were down by 53.6% to 24.8p from 53.4p in the prior year and by 54.3% in constant currency.

Share Price Performance

Daily Chart as at October-28-19, before the market closed (Source: Thomson Reuters)

On 28th October 2019, WPP PLC shares were trading at GBX 958.40 at the time of writing before the market close (at 10:05 AM GMT), down by 1.64% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,047/GBX 791. The company's stock beta was 1.20, reflecting more volatility as compared to the benchmark index.

Conclusion
The growth in Q3 FY2019 is encouraging, but the company is focused on delivering the longer-term goals and know there will be twists and turns along the way. 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 has shown decent top-line growth in the current period, and while there was some weakness in the healthcare division and 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 current price of GBX 958.40 (as on 28 October 2019, before the market close).
 

Fuller Smith & Turner PLC

Fuller Smith & Turner PLC is a British pure-play pub and hotel operator, headquartered in South London, United Kingdom. The company's operations are differentiated in three operating segments: Managed Pubs and Hotels, The Fuller's Beer Company, and Tenanted Inns.

On 15^th November 2019, the company will release its half-year results for the 26 weeks to September 28, 2019.

Recent News
On 23^rd October 2019, the company has exchanged contracts to acquire Cotswold Inns & Hotels Ltd. This acquisition, which comprises of a collection of freehold country inns and hotels, seven high quality, and eight freehold staff cottages in the Cotswolds, is for a total of 40 million pounds.

Trading Update (for the 22 weeks to 31 August 2019, as on 4^th September 2019)
The group has made an excellent start to the new fiscal year with like for like sales in Managed Pubs and Hotels increased by 2.5% and like for like profits in Tenanted Inns decreased by 2%, against exceptionally robust trading for the corresponding period of the last year.

Financial Highlights (for the 52 weeks ended 30 March 2019, £million)

(Source: Annual Report, Company Website)

In FY2019, the company’s reported revenue increased by 7 per cent to £431.1 millionas compared with the financial year 2018 of £403.6 million, due to strong like for like (LFL) trading within the Managed estate and the contribution from the ten acquisitions and one new opening made in the early part of the current year.  Basic earnings per share declined by 46 per cent to 35.12 pence as compared with the financial year 2018 of 64.89 pence.

Share Price Performance

Daily Chart as at October-28-19, before the market closed (Source: Thomson Reuters)

On 28th October 2019, Fuller Smith & Turner PLC shares were trading at GBX 1,052 at the time of writing before the market close (at 10:20 AM GMT), down by 2.59% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,120/GBX 757.69. The company's stock beta was 0.47, reflecting less volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
In the current trading update, the company had a decent start to the year with the sale of the Fuller’s Beer Business and announced the intention to return around 69 million pounds to shareholders. The Managed Pubs and Hotels showed like for like progress and like for like profits in Tenanted Inns decreased slightly.

Business operations may be impacted due to an increased risk of staffing shortages, which will lead to recruitment getting more competitive. This might drive wage inflation, especially if the free movement is restricted after Brexit. Market uncertainty is affecting the consumer sentiment, which can adversely impact discretional demand as well. Higher input costs can reduce profitability margins. As the company has no operations in Europe, it is well insulated against any direct impact of Brexit. However, the company operates in a highly regulated and competitive environment, and any new legislation impacts the operations of the group.

Based on the above rationale and supported by valuation done using the above method, we have given a "WATCH" recommendation at the closing price of GBX 1,080 (as on 25th October 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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