I've been researching WPP just lately mainly as an income / value play, since:
- They could be undervalued right now
- They may in the process of a recovery
Full analysis aside for now, based on the last full year, but today's SP of £10, we have:
- P/E 11.8
- P/Sales 0.81
- P/Book 1.29 (including intangibles and goodwill)
- DY 6%
- Dividend cover 1.4
- Discounted Cash Flow initial growth 2.00% final 2.00% terminal 2.00% discounted @ 8.91% = 16.66
- Discounted Cash Flow initial growth 5.50% final 3.00% terminal 2.20% discounted @ 7.21% = 24.66
- Earnings power value @ 8.91% = 14.17
- Earnings power value @ 7.21% = 17.26
- Discounted dividends growth 3.00% @ 8.91% = 10.46
- Discounted dividends growth 5.00% @ 7.21% = 28.50
Note that my estimates for DCF tally up reasonably well with SWSs.
My very limited attempt at the recent back story
Despite the good signs above, my enthusiasm re. opening a position is tarnished by several factors. The share price fell quite drastically from about £19 in February 2017 to about £8 early this year. Notable explanations being OM has fallen from 14.3% to 9.17% from FY 2016 to 2018. Cash conversion has also fallen. Furthermore the company doesn't have particularly good ROCE, tangible BV is negative. I don't know the full story, but my guess is that several acquisitions haven't paid off too well. The name "Kantar" comes up. Apparently they are in process of disposing of this, and are/have been making other significant. Sometime between 2017/2018 a new CEO Mark Read has appeared, and a comparision of the layouts of ARs 2013-2017 with AR 2018, reveals a definite rebranding. But what the hell I think, I'm looking at this from the perspective of a small punt on income and value - what could go wrong? Lots, since it seems that this firm has on through a lot of upheaval of late.
Hmm. However the last full year was for year ending 31st December 2018, and given that a lot has probably changed in the firm since then I decided to squint intently at any kind of Interim, Quarterly, HY I could find.
Inconsistencies in reporting revenues across quarterly and interim updates
This kind of company (advertising and PR apparently) certainly is new to me to attempt to analyse. First of we have the "billings and revenues" puzzle. If you check out the first set of figures from FY18 prelims, then you can see these 2 terminologies. I did some brief research, and basically, so it seems, these types of firms hold "client accounts" for their customers and so the figure for any particular client's "billing" is the size of that client firm's budget with WPP. WPP won't have spent all of that money, but presumably it represents some kind of projection of the client future expenditures. So this is lot higher than the "real" revenue figure, that being the figure that WPP has actually invoiced the client for. The next puzzle is that of "revenue" vs. "revenue less-pass through costs". This occurs because usually a portion of the revenue acquired from a client almost immediately goes back out of the door, to pay for a service e.g. network fees. There seems to be much debate thus, as to which bit is revenue and which is an expense etc. After reading about this I'm inclined to stick to the raw (i.e. the larger) of the revenue figures in my estimates/calculations.
However even now that I'm quite clear about these slightly different top line categorisations, after spending sometime puzzling over their last few interim and quarterly results I'm becoming increasingly dubious of the clarity/accuracy of their revenue announcements. Basically I'm looking for growth, albeit small, but some signs that they turning the decline around. So I end trying to reconcile the Q3 of 2019 with earlier revenue announcements. I've tabulated the part of this announcement's Revenue Analysis (second table) right here:
As you can see revenue growth is against "as reported", "at constant currency", and "like for like". Whilst the 5.2% apparent reported rev. growth for Q3, and the lower 1.9% at CCurr seem reasonable, I decided the trace through several of the last announcements, focussing solely on reported revenues figures and see if I could confirm the kind of % growth rates which WPP themselves state. Needless to say my initial attempt to replicate these figures ended with disappointment. I've since rechecked and found several discrepancies:
For example in the published Q1, the reported revenue for that period is stated as £3,588M
https://www.investegate.co.uk/wpp-plc-- ... 00081709X/
However reported revenue is restated for Q1 in Q3's revenue analysis tabel as £2992M
https://www.investegate.co.uk/wpp-plc-- ... 00044863I/
For a while I suspected foul play. But now when I inspect the superscripts and follow the referring notes I see the following:
 As a result of the Board's decision on 12 July to enter into an agreement to sell 60% of Kantar, Kantar is now categorized as an "asset held for sale" in accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Accordingly, the Third Quarter Update reports revenue and revenue less pass-through costs, on a geographic and sector basis, excluding Kantar. 2018 comparators have been restated to exclude Kantar. For transparency, we will continue to report results both including and excluding Kantar until FY 2019.
 Continuing operations
In other words, the smaller "reported revenue" figures in the Revenue Analysis are restated such as to attempt to remove Kantar's contribution. Sound about right. Assuming this conclusion is correct it looks as if the sold-off portion (i.e. the Kantar bit) accounted for about 15% of total WPP revenue.
I would be interested to hear from any others about WPP, and/or about the disposal of Kantar and it's impact on the financial statements.