WPP's chief executive, Sir Martin Sorrell, is still predicting a "saucer-shaped" recovery in the advertising market with a long, flat bottom followed by a gradual incline. Fortunately for WPP investors the company's share price chart over the past year has shown more of a V-shape. The stock plunged to just 460p in the wake of the 11 September terrorist attacks. But it has recovered swiftly back to 770p and could have further to go.
WPP has proved more resilient than many rivals because it has a greater spread of media businesses with interests that are genuinely global. This was demonstrated by the group's first-quarter trading update. Underlying revenues were down 9 per cent but some divisions are performing quite strongly. For example, information and consultancy was up 6 per cent, while advertising and media investment management was flat, which is not bad in a difficult market.
The question, of course, is where is the market heading. WPP, whose businesses include J Walter Thomson and Ogilvy & Mather, has added net new billings of £500m in the quarter including new client wins from Novartis, Domino's Pizza, BP and Reckitt Benckiser. The group also claims that it is on target to achieve its budgeted operating margin.
Analysts believe this demonstrate that the level of "pitches" for new business has started to return to normal levels after the nightmare final three months of 2001.
That is the good news. The bad news is that part of this recovery has already been reflected in the share price which has bounced back strongly. The other worry is that the advertising recovery takes longer than expected.
On Numis Securities' current year profit forecast of £520m, the shares trade on a forward p/e of 24. That is decent value in the longer term, though the shares fell 6.5p to 770p on the lack of any genuinely new news.
However, bargain-hunters may prefer Cordiant. The Bates Worldwide group has survived its financial difficulties without a forced sale or rescue rights issue, with the main blow (apart from the collapsing share price) being the passing of the dividend. Cordiant is now valued at just 0.7 times revenue compared with a sector average of 2.5 times and 2.3 times for WPP. After three profits warnings since 11 September it is hardly one for the faint-hearted. But the shares, down 2p at 78p yesterday, may be worth a look.
Ferraris set to benefit from NHS spending
Ferraris is among several healthcare companies thought likely to benefit from increased spending on the National Health Service. But such hopes could not prevent the shares sliding some 11 per cent yesterday as swathes of its large retail investor base took profits after last week's post-Budget rally.
Steven Mills, chief executive, was at a loss to explain the reaction to yesterday's half-year results, arguing that the company's underlying health was better than a quick glance at the results might show.
Pre-tax profits more than halved to £1.03m, pummelled by restructuring charges and losses in its engineering businesses, which have since either been sold or found committed buyers.
Yet demand elsewhere for devices that monitor heart and lung activity, and vacuum equipment used in the semiconductor industry appears to be returning to levels seen before August's shock profit warning due to weak demand in the US. Turnover in the group's non-engineering businesses was up some 29 per cent year-on-year, to £28.5m.
Meanwhile, the group has been investing heavily to cope with an upturn in demand for brain scanning MRI machines. The combination of restructuring and renewed investment saw the company's cash outflow in the period widen from £1.2m to £1.3m, but Mr Mills expects positive cashflow in the second half and a roughly neutral position in the full year.
With demand recovering, Mr Mills is confident that group trading is returning to its historic pattern, with revenues in the second half typically coming in at double the level seen in the first half.
Investec Henderson Crosthwaite, the house broker, anticipates pre-tax profits of £7.4m this year, with earnings of 18.2p per share, rising to about £9m and 21.7p in 2003. That puts the shares, down 25.5p at 204.5p, on a forward price-earnings multiple of 11.
If the company is back on track to deliver on its long-term target of 15 per cent annual revenue and profits growth, yesterday's share price fall marks a buying opportunity.
Tandem's profits go to higher gear
Companies that make bicycles in Britain have a habit of slipping a gear and, in the past, Tandem has been no exception. Its brands include Falcon, British Eagle and Claud Butler and by its own admission the group has been "through hell and high water" in recent years.
But after a change of strategy Tandem has started to pedal along nicely. The aim has been to diversify to become a more broadly based sports equipment and leisure group.
Four acquisitions since September 2000 include the £736,000 purchase of Dawes bikes, Ben Sayers' golf assets for £1m and Pot Black snooker equipment. Tandem can now sell a broader range of products to customers such as Argos, JJB Sports and John Lewis. The AIM-listed company believes it can snap up more small sports equipment makers which have well-known brands but lack scale.
The strategy is paying off as yesterday's figures show. Profits jumped to £1.2m for the year to 31 January, up from £777,000 previously. First quarter sales in 2002 have been promising, helped by the good weather which has boosted sales of bikes and children's playground equipment.
Tandem has been an illiquid stock subject to clunky share price movements but the group is thinking of introducing lower priced dealing facilities for small investors.
The shares trade on a forward p/e of 9 on Peel Hunt's 2002 forecast of £1.6m profits, though that figure may be revised upwards. After the slow punctures of the past the stock, down 0.25p at 5p, may now be worth tucking into the saddle bag.Reuse content