WPP hosted an investor event last week highlighting integration of the company’s businesses to support client needs as well as the role of data, especially in context of the newly announced [m]Platform unit inside of GroupM. We continue to view WPP favorably in terms of its strategic position and in terms of its stock price, especially at current trading levels. Our price target remains at 2070p on a YE2017 basis, and we continue to rate the stock Buy.
WPP hosted an investor event yesterday with separate sessions on horizontality, WPP’s Health & Wellness initiative, Kantar, GroupM and the new [m]Platform. Financial expectations remain unchanged either from management commentary or our own forecasts.
Descriptions around how accounts are managed to capitalize on WPP’s resources and the range of horizontal solutions (integrating solutions from across different WPP business units to support overall relationships with marketers) provided nuanced perspectives on the mechanics of modern account management. The same was true for the description of the new WPP Health & Wellness business. The Kantar presentation provided additional illustrations around ways in which different WPP businesses are collaborating and using Kantar’s data, a common theme from the day.
We thought the most notable presentation related to GroupM and its [m]Platform division, which was announced this week. [m]Platform is an aggregator and source of audience intelligence data, a media planning tool and an analytics, attribution, optimization and visualization offering. Comprising many of the people and much of the technology previously attached to GroupM’s Xaxis, its former Connect and Data & Analytics divisions the recent ExchangeLab acquisition and data from Kantar among other inputs, [m]Platform will be used to power offerings for GroupM agencies as well as for Xaxis.
While [m]Platform does not appear to us as something that is radically new for WPP – it is a reorganization, primarily – we do think it will help with GroupM’s positioning in pursuit of new business and retention of existing accounts. For example, it provides GroupM with a capability to provide its clients with unique attribution and accountability metrics. Data and technology-driven activities such as these are increasingly important for media agencies as they compete for market share with media planning and buying offerings that can be highly commoditized across the industry.
Overall, we think WPP remains best-positioned strategically vs. peers and their long-term growth should slightly outperform given the company’s business and country mix. We are additionally positive on the company as a hedge against a slowdown in growth for media companies exposed to the United States, made all the more likely given uncertainty in government policies next year. We are retaining our YE2017 price target of 2070p and continue to rate the stock Buy.
VALUATION. Our target for WPP equates to a 16x 2017 P/E on a headline basis. We value WPP’s operating business with a DCF framework, incorporating a 7.0% near-term discount rate, a 10.8% long-term discount rate and a 5.0% long-term growth rate.
RISKS. Agency risks relate to blowback from the transparency issue, squeezing fees from clients, competition from adjacent industries, reduced competition between marketers and demand for advertising services.
FULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE: WPP 12-2-16.pdf
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