WPP Earnings: 2023 Off to Good Start and Likely to Strengthen in Second Half

WPP’s WPP first-quarter net revenue update supports our assumption of 4% full-year net revenue organic growth as the firm experienced growth across all its segments and in all regions in which it operates. We think that with improvements in China and India during the second half of this year, and less economic uncertainty in Europe and the U.S., organic growth likely will be at the high end of WPP’s 3%-5% 2023 guidance, which was unchanged.

We were pleased with WPP’s sale of around 29% of one of its public relations consulting firms, FGS Global, with the deal implying an FGS Global enterprise value of more than $1.4 billion, or 3.3 times its 2022 revenue. WPP will still have majority ownership (51%) of the PR firm. While FGS is growing faster than WPP, we think this transaction supports our view that WPP is undervalued. The firm is trading at only 1.2 times this year’s net revenue consensus estimates, and our GBX 1,340 fair value estimate for the firm represents a 2023 net revenue multiple of 1.6.

Regarding artificial intelligence, while the firm continues to invest in it—mainly to benefit its media segment—it does not expect generative AI to replace human creativity. We think AI likely will improve productivity, which could increase the volume of creative campaigns (designed mainly by humans) per product or service produced, thereby making those campaigns more targeted and increasing ROIs, strengthening demand for the service.

First-quarter net revenue increased 9.9% from last year, driven by the tailwinds from organic growth (up 2.9%), acquisitions (0.7%), and currency exchange (6.3%). With the year-over-year decline in China and India, both partially due to very high comps in 2022, WPP net revenue still increased organically in all regions during the quarter, led by the U.K. (up 7.4%), Western Continental Europe (3.4%), North America (1.9%, which included 2.3% growth in the U.S.) and the other international regions (1.9%).