WPP

[Arborbridge]

I'm near the end of my annual updating of charts, but this one tells a story:-




I bought the first tranche in November 2017 before the demise of Martin Sorrell. The capital I'm taking as coming from the sale of Go-Ahead group in August of that year. GOG share price has fallen 8% from my average selling price, and my WPP shares are 29% underwater after a year. A classic FPTF (frying pan to fire) result so far. I feared all the bad goings on at Go-Ahead, strikes, high capitalisation and gearing, but did not foresee any problem with WPP. WPP was a market leader and regarded as a steady performer - all that I needed was to find a good buying point for yield - which I did at a very reasonable 4.59%. Not too high, not too low. All very Goldilocks.

Well, we all know what happened later, but I stuck with the program and gradually brought my holding up to "one unit" as we say, the last purchase being 2 September 2018. Now we have a price crash and a held dividend - forewarning of a cut, or just a stasis while the company sorts itself out? It feels like a cut might be on the cards as part of a kitchen sink operation.

Fortunately, I do not have to make any decisions about further top-ups even if WPP rises to the top of the table (now in 5th position) because that particular broker account does not have sufficient funds.

Arb.

PS I apologise for the amount of white space reducing the useful size of the picture - I must get to grips with that next time. Part of this is that I've had to find a cut and paste workaround because my Snipping Tool ceased to function.

[moorfield]

The cashflow statement (see http://sites.wpp.com/annualreports/2017/ , page 124) already shows us a 20% drop in operating cash inflow and decreasing dividiend cover last year - 1.9x in 2015, 2.1x in 2016, to 1.3x in 2017. So you might be right re a "kitchen sinking" from the new CEO and CFO... I think I'll wait to see what the next results bring (due in March I think) before any further top-ups.

[monabri]

I'm not seeing those Divi cover numbers.

2015-12 cover was 101/42
2016-12 cover was 100/48 ( free cash flow per share in pence / dividend in pence)
2017-12 .............119/60

Source
http://financials.morningstar.com/ratio ... region=GBR

An alternative source

Digital Look

https://uk.webfg.com/equity/WPP

Reckons current cover is 2.7 but forecast reduction to 1.8

SimplyWallStreet
Latest 2.5 reducing to 1.8x over the next 3 years.
https://simplywall.st/stocks/gb/media/l ... wpp-shares

(might need to supply an email address to access but this then allows 10 free analyses per month ( I subscribe)).

[moorfield]

I'm not seeing those Divi cover numbers.

I prefer to work solely with the cashflow statement, and ignore Morningstar, Digital Look and the rest.


Net cash inflow from operating activities = £1408.1m

Capex Estimate:
Purchases of property, plant and equipment = -£288.9m
Purchases of other intangible assets (including capitalised computer software) = -£37.3m
Proceeds on disposal of property, plant and equipment = +£8.0m

Equity dividends paid = £751.5m
Dividends paid to non-controlling interests in subsidiary undertakings = £87.8m

(1408.1 - 288.9 - 37.3 + 8) / (751.5 + 87.8)

One can argue over ratios all year long of course. The important / bigger picture to look at is the trend.

[Arborbridge]

Either way: it's covered, but trend not good.

BTW, I used to use Co REFS for cash flow, and I believe those ratios came from Morningstar. Whenever I worked cash flow out manual, it agreed pretty much - so in the end, being lazy, I just used the morningstar ones if I ever bothered to check at all.

As Moorfield says, the trend is important, but I've never been convinced that cash flow is necessarily an indicator of action being needed. Having seen the cash flow, one then has the problem of another set of assessments and decisions to make, and it all gets a bit over-analytical.


Arb.

[miner1000]

Now here is a company that I would never buy when Sir Martin was paying himself 70 Million a year. Like Jeff Fairburn he was greedy and overly so.

But now, with Sir Martin gone and the company ex-growth, it is on my watch list. Possibly a very good HYP share, if they can find a way to survive and thrive with the potential digital challenge. Perhaps a purchase of half a unit when I next make a buy. Probably December if the share price has stabilised. Miner