Shares in advertising group WPP (WPP) traded 2% higher at 960p after half year results beat expectations.

The group has benefited from a sharp recovery in global advertising expenditure and has returned to full-year 2019 levels a year ahead of plan.

The guidance for the operating margin has been raised, and £350m of share buybacks has been announced.

Revenue during the first half, excluding pass-through costs, increased by 5% to £6.1 billion. This was ahead of consensus figure of £5.8 billion.

Headline operating profit increased by 54% year on year to £590m, and earnings per share increased by 86% year-on-year to 28.7p.

This strong performance was a result of strong like-for-like sales growth in all regions, with net new business wins for the first six months of the year estimated to be over $2.9 billion.

An interim dividend of 12.5p has been declared, which equates to an increase of 25% and is ahead of the market consensus figure of 10.5p.

ALL ABOUT DIGITAL

The group’s success will largely be contingent upon its ability to transition to an increasingly digitally focused advertising environment.

The phenomenal growth recorded by digital specialist agency S4 Capital (SFOR) indicates how important it is for advertising agencies to offer a service that integrates strong creative and programmatic analytic capabilities.

Earlier this year WPP launched Choreograph, its global data products and technology company. This brings together the specialist data units of Group M and Wunderman Thompson into a single company with global reach.

The group will offer four key product categories: audience insights and planning, private identity solutions, artificial intelligence-based media optimisation, and predictive analytics and services.

NEGATIVE FACTORS TO CONSIDER

Today’s earnings release raises two concerns relating to WPP’s ability to successfully transition to a digital centric advertising world.

First, the performance of Group M, an integral component of WPP’s digital offering, was lackadaisical. Second, the group has failed to embrace the merger and acquisition opportunities that would enable it to build a more comprehensive digital franchise. This in marked contrast to S4 Capital, which has made a multitude of acquisitions in recent months.

By Mark Gardner

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Issue Date: 05 Aug 2021