The world’s largest advertising group WPP (LSE: WPP) may not be the first company that comes to mind when looking for growth investments.
Indeed, over the past 24 months, shares in the company have slumped, primarily due to growth concerns. Since the beginning of September 2017, excluding dividends, the stock has underperformed the FTSE 100 by approximately 40%.
However, green shoots of growth are now starting to show. On the day after the company named Mark Read, previously co-chief operating officer, as CEO, WPP announced today like-for-like sales growth of 2.4% in the second quarter. These numbers exclude currency fluctuations and revenues from acquisitions. On a headline basis, revenues declined 0.2%, a dip the firm blames on a rise in the value of the pound during the period.
Back on track?
In many respects, it’s a testament to the company’s size and diversification that it managed to eek out growth during the quarter.
The group lost its founder and CEO Martin Sorrell abruptly at the end of April and, ever since, the business has been dogged by rumours surrounding his departure. It has also taken several months to find and appoint a new leader.
With an incomplete c-suite, I wouldn’t have been surprised if the company had reported a decline in like-for-like sales growth for the rest of 2018, especially with all the other headwinds facing a business, such as Facebook and Google’s increasing dominance of the advertising marketplace. That said, while the topline numbers are expanding on a like-for-like basis, earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 6.7% including currency, and 1.9% excluding.
Now that the new CEO is in place, I reckon this trend will reverse. A strategy review is already underway across the business, with the goal of hunting out and improving underperforming operations.
With WPP’s turnaround strategy continuing, I believe now could be the time to snap up the stock before the market catches on. The shares currently change hands for 10.5 times forward earnings and yield 4.8% a valuation that, in my view, severely undervalued the business and its prospects.
Global leader
If you’re not sure about WPP’s outlook, another FTSE 100 growth stock that gets me excited is the London Stock Exchange (LSE: LSE).
The first thing you notice about this investment is its rich valuation. Shares in the exchange are valued at 24.3 times forward earnings. Usually, I wouldn’t buy or recommend such a richly-valued stock, as such a valuation leaves little room for error if growth stumbles. In this situation, however, I’m happy to make an exception because of the role that the Exchange plays in the global financial infrastructure.
In its own words, the company offers “unrivalled” access to Europe’s capital markets as well as international benchmarking services and clearing. Growth in these markets, as well as select acquisitions, has helped the group grow net profit by 180% over the past five years.
And as long as management continues on the current path, I see no reason why the company cannot continue to grow. Brexit might prove to be a headwind, but the firm already has subsidiaries throughout Europe, so it’s well placed to navigate around any new red tape or trade barriers.
