ii view: ad agency WPP already exploiting AI for clients

First-half results to 30 June

• Like-for-like revenue up 3.5% to £7.22 billion
• Pre-tax profit down 2.9% to £546 million
• Interim dividend unchanged at 15p per share
• Adjusted net debt up £0.3 billion year-over-year to £3.5 billion

Guidance:

• Now expects full-year like-for-like sales growth of between 1.5% to 3%, down from a previous 3% to 5%

Chief executive Mark Read said:

“Our performance in the first half has been resilient with Q2 growth accelerating in all regions except the USA, which was impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects. This was felt primarily in our integrated creative agencies. China returned to growth in the second quarter albeit more slowly than expected. In the near term, we expect the pattern of activity in the first half to continue into the second half of the year.”

"We have exciting future plans in AI that build on our acquisition of Satalia in 2021 and our use of AI across WPP. We are leveraging our efforts with partnerships with the leading players including Adobe, Google, IBM, Microsoft, Nvidia and OpenAI. We are delivering work powered by AI for many clients including Nestlé, Nike and Mondelēz. AI will be fundamental to WPP's future success and we are committed to embracing it to drive long-term growth and value."

• Invest with ii: Top UK Shares | How to Start Trading Stocks | Open a Trading Account

ii round-up:

WPP (LSE:WPP) is a major global advertising company. Its services include core communication such as media buying and planning, along with Public Relations. 

For a round-up of these latest results announced on 4 August, please click here. 

ii view:

Originally a maker of wire baskets and teapots called Wire and Plastic Products, WPP Group today operates in more than 100 countries employing over 110,000 people. Global Integrated Agencies taking in ad-related services generates most of its revenues at around 85%, followed by Public Relations at almost 9% and other Specialist agencies the balance of around 6%. 

Geographically, North America generates its biggest slug of sales at just under two-fifths, followed by the combined Asia, Africa, and Latin America at just over a quarter, Europe a fifth, and the UK the balance. Its clients include 307 of the fortune 500 with names such as Reckitt Benckiser (LSE:RKT), Mondelez International (NASDAQ:MDLZ), easyJet (LSE:EZJ), Lloyds Banking Group (LSE:LLOY), Pernod Ricard SA (EURONEXT:RI), Nestle SA (SIX:NESN) and Nike (NYSE:NKE) on its books.

For investors, lower spending from technology clients and some delays in technology-related projects cannot be overlooked. Costs for businesses generally remain elevated, currency headwinds persist, while the West’s strained relationship with China also warrants consideration.

• Stockwatch: why these shares could double in value
• Insider: boss ups stake at FTSE 100 high-yielder
• Richard Beddard: a good long-term investment at a firm undergoing rapid change

On the upside, diversity in terms of both product and geographical region is present. Work powered by artificial intelligence, or AI is now being done for some clients, a push to save up to £600 million come its financial year 2025 continues, while a forecast dividend yield in the region of 5% is not to be overlooked. 

On balance, and while risks remain, an analyst consensus estimate of fair value at over £11 per share looks to give room for longer-term hope.  

Positives: 

• Diversified product and geographical offering
• Attractive dividend (not guaranteed)

Negatives:

• Advertising demand is historically cyclical
• Foreign exchange movements can hinder

The average rating of stock market analysts:

Buy