• Testing time for WPP as half-year results loom

    Testing time for WPP as half-year results loom

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    WPP faces a challenging period as its half-year results approach, raising questions about the company’s overall value. UBS, a major bank, predicts a -0.8% decline in organic revenues, a key metric for analysts, and expects margins to fall below 11.2%, which is lower than most forecasts. WPP has only forecasted a 1% growth at best for 2024, so while a -0.8% decline isn’t drastic, it doesn’t help CEO Mark Read’s position.

    Complicating matters, WPP recently rejected an initial offer from KKR to gain a majority stake in financial PR firm FGS Global, which was valued at more than $1.425 billion when KKR invested last year. WPP holds a 55% stake in FGS, and KKR owns 30%. WPP’s total valuation currently stands at around $10 billion, which suggests that FGS alone is worth about one-seventh of the entire company—a significant figure for a business that generated $455 million in revenue in 2023, according to PR Week.

    This situation raises two key questions: Is WPP waiting for a better offer, and if FGS is valued so highly, why is the rest of WPP seemingly undervalued, given its total revenue of approximately $18 billion?

    A potential break-up bid for WPP is always a possibility. The company possesses valuable assets, such as Ogilvy and various media agencies within GroupM, although these agencies have faced challenges in recent years. Despite this, shareholders have so far resisted the idea of a break-up. However, FGS’s valuation might prompt some to reconsider. In any case, it begs the question of whether WPP, which primarily serves consumer-facing clients, truly needs a financial PR giant like FGS.

    In the post-Sorrell era, WPP has become a large, unwieldy entity, difficult to pivot. While CEO Read hasn’t made any glaring mistakes, some might debate the merits of certain internal mergers. The financial benefits of these mergers, including job cuts at some of the merged creative agencies, will take time to materialize. For example, the former Wunderman Thompson agency in London, now merged into VML, appears to be shedding staff regularly.