The Motley Fool

Can you afford to miss FTSE 100 dividend stock WPP plc after 40% fall?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Question mark made up of pound symbols
Image source: Getty Images.

The share price of FTSE 100 advertising group WPP (LSE: WPP) has fallen by more than 40% since peaking at over 1,900p in March 2017.

The stock edged lower again today after the company confirmed press reports that founder and chief executive Sir Martin Sorrell has been accused of misusing company funds and is under investigation.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Sir Martin rejects the allegations, which are being investigated by an independent law firm.

Since founding WPP more than 30 years ago, he’s turned it into a FTSE 100 firm that’s one of the largest of its kind. But global advertising spending is under pressure as big companies cut costs.

I believe WPP’s sliding share price is a reflection of a weaker outlook for profit growth, and of uncertainty over the future management of the firm. Even if today’s allegations are unfounded, I expect this incident to increase the pressure on the firm to plan for Sir Martin’s retirement.

Cheap enough to buy?

Despite weaker market conditions, this media giant remains a formidable business. WPP is expected to generate an after-tax profit of £1,487m in 2018 on sales of £13,018m. This implies a net profit margin of 11%, which is pretty good.

The only problem is that these figures are around 20% lower than in 2017, when WPP reported sales of £15,265m and a net profit of £1,912m. The group’s net profit margin last year was 12.5%.

Analysts’ consensus forecasts suggest that 2018 could be the low point for profits, which are expected to rise by about 5% in 2019. If this view turns out to be correct, then the stock could be worth considering at current levels. Trading on a forecast P/E of 9.5 with an expected yield of 5.4%, this could be a value buy.

My main concern is that the outlook could continue to weaken. I think it makes sense to stay on the sidelines for a little longer.

Are further gains likely?

The advertising market is uncertain, but a strong global economy means that some types of marketing business are performing well. One example is trade exhibition and event organiser ITE Group (LSE: ITE), which operates extensively in Russia and Asia.

This £425m firm says that results for the six months to 31 March are expected to be in line with expectations. Revenue for the half year is expected to have risen by 7% to £75m, but revenue growth from major events appears to be stronger.

Four of the group’s top 10 events took place during the first half. ITE says that these delivered “double-digit” like-for-like revenue growth. This momentum is expected to continue through the rest of the year.

The company said today that it has already booked 85% of forecast revenue for the current year. On a like-for-like event basis, this represents revenue growth of 14%. However, as not all events are repeated every year, overall revenue growth is expected to be lower, at about 5%.

My view

ITE’s decision to focus on its biggest events seems to be working well. However, the shares currently trade on 18 times 2018 forecast earnings, with a prospective yield of 2.6%.

Earnings are expected to rise by about 15% next year, but the shares still look fully-priced to me. I’m not tempted to buy at these levels, although I would continue to hold the stock while performance remains good.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended ITE Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.