WPP rallies on Barclays upgrade as Deutsche and Credit Suisse up price targets

WPP got a boost on Monday as Barclays upped its stance on shares of the advertising giant to 'overweight' from 'equalweight', while Deutsche Bank and Credit Suisse increased their price targets following the company's first-quarter trading update last week.

Barclays, which lifted its price target to 1,100p from 1,000p, pointed to the Kantar disposal, "some confidence" in management's ability to turn the business around, the stock's valuation and the fact that organic growth is "not getting worse".

The bank noted that first-quarter net sales were very much in line - albeit at a lowly -2.8% level, while management re-iterated its FY19 targets with more confidence. It expects the Q2 organic performance to be similar to Q1 before better numbers in the second half.

"Q2 can still be seen positively, however, if all the other agencies report decent numbers as expected," it said.

Barclays also pointed to the fact that WPP is selling Kantar and starting a buyback, which it reckons will be another catalyst for the shares.

"We believe there is still scepticism in the market that WPP can sell the business at an acceptable price resulting in an earnings per share neutral transaction," it said.

The bank said management's turnaround strategy - a simpler structure, lower margins to invest in talent, and a focus on creativity and technology - looks "sensible".

"The multi-year time frame to get back to growth also appears sensible, and consensus at 0.7% organic next year is not aggressive."

Finally, the bank argued that the shares are very cheap. "On a relative price-to-earnings basis, WPP is close to an all-time low and we would argue that the shares are pricing negative growth rate and margin contraction forever."

Deutsche Bank also had something to say about buy-rated WPP, as it lifted its price target by 60p to 1,070p.

"We think that valuation is still supportive at 9x price-to-earnings, 10% free cash flow yield, 6.6% dividend yield (2019E) and investors should increasingly become comfortable that the business is being turned around," it said.

Credit Suisse also bumped up its price target on neutral-rated WPP, to 1,050p from 1,015p, as it said "just meeting expectations is a positive", referring to the 2.8% drop in Q1 like-for-like revenue.

"We took away a number of positives from the results and conference call. 1) Q1 should be the nadir for the US; 2) Kantar was flat vs minus 1.8% in 2018 and along with a good level of interest from potential buyers this should help the sale process; 3) WPP said new business had returned to historical levels and they are not facing any major account reviews; 4) WPP stated updated budgets confirmed an expected improvement in H2; 5) steps have been taken to fix the US business with circa 75% of US revenue now coming under new leadership."

At 0940 BST, the shares were up 2.4% at 978.20p.