WPPGY Downgraded to Neutral - Analyst Blog
September 27 2011 - 9:11AM
Zacks
We recently downgraded our recommendation on WPP Group
plc (WPPGY) from Outperform to Neutral.
The downgraded rating is backed by highly competitive and
fragmented communications services industry, wherein risk of
clients shifting their accountability to other agencies may result
in loss of market share, thereby decreasing profit. Given the
service-oriented competitive nature of the advertising and
communication industry, attracting new clients and retaining the
existing client relationship pose a challenge for the company.
Moreover, the group’s dependence on a limited number of large
clients for a significant portion of its revenues may prove
detrimental to its performance, as a loss of any of these big
clients could adversely impact the company’s prospects, business,
financial condition and results of operations.
Amid such challenges, WPP has been maintaining its position as
one of the largest advertising companies in the world and a
significant player in the US with dominant market share and pricing
power in the advertisement industry.
The company recorded an encouraging rise in revenue and margins
during the first half of 2011 and expects revenue growth, excluding
the impact of acquisitions and currency fluctuations, to be over 6%
along with a margin improvement target of 0.5%.
The company’s continuous strategic acquisitions and cost
reduction initiatives on the backdrop of improved demand and
increased spending power of the consumers appear encouraging in the
medium and longer term.
Moreover, the company’s investments and mergers made in digital
tools and infrastructure will also facilitate WPP to create value
for its clients. The company has shown commitment to its
shareholders and has recently declared its interim dividend of
GBP0.0746, representing an increase of 25% from its previous
dividend rate of GBP0.0597.
However, we are concerned about the company’s significant
international operation, which exposes it to the risk of change in
foreign exchange rates, complexity and delay in local legislation
and unstable political conditions.
Based in Dublin, Ireland, WPP Group plc provides advertising and
communications services worldwide. The company faces competition
from its peers like Interpublic Group of Companies
Inc. (IPG), Omnicom Group Inc. (OMC), and
Publicis Groupe SA.
INTERPUBLIC GRP (IPG): Free Stock Analysis Report
OMNICOM GRP (OMC): Free Stock Analysis Report
WPP GRP PLC (WPPGY): Free Stock Analysis Report
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