WPP hopes for good news ahead of first-half results
It has been a tough few months for WPP, but can the ad group issue a more upbeat outlook for its second half?
WPP PLC is expected to report first-half earnings on 27 August, and is forecast to show a fall of 28.7% in revenue, to £5.4 billion, while pre-tax profit is expected to drop by 40% to £360.5 million.
Ad spending will not have been high on the list for many firms over the past few months, so WPP’s results are not likely to make good reading for investors. The group has responded with substantial cost cuts, aiming for £700-800 million in spending reductions. Of course, this is all backward-looking; the crucial part of the earnings report will be whether the firm has seen any recovery in ad spending, and if it has, whether this recovery is sustainable. Economic data has pointed to a rebound in parts, but the outlook remains highly uncertain.
At 12 times earnings, and with a yield of 3.7%, the shares are not expensive, but the current valuation likely includes quite a substantial amount of hope that the economy will recover quickly, and if this proves not to be the case then WPP could start to look overvalued.
WPP: technical analysis
Although the rally from the March lows has stalled, the price continues to create higher lows, with the latest dip finding support near the 100-day SMA. A rally above 640p would break trendline resistance and bring 650p and 685p into view. A more bearish view requires a drop back below trendline support, and then below the August low at 560p.
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