Investment View: Why to have and to hold is best bet for WPP's shares
WPP knows a thing or two about advertising and the group was at it yesterday, seeking to catch the eyes of investors. The company was trumpeting the news that its digital arm had participated in a third round of financing for Leading Smart Holdings, which has a controlling stake in the parent company of Maiozhen Systems. The latter is (we are told) a leading digital advertising measurement company. With expertise in managing big data in China. Phew.
What's the big deal, you might ask. Well, what the announcement did do is provide the company with an opportunity to tout its business in China, one of its fastest-growing markets with revenues of $1.3bn (£850m) in 2012. As WPP's PR people know, mention China and people start seeing dollar signs.
But WPP's operations there and in other fast-growing markets are worth watching. The broker Charles Stanley has highlighted its sector-leading position in emerging markets. There is substance to back up the spin.
Overall the recent full-year results were fine, with steady like-for-like revenue growth (excluding acquisitions) of 2.9 per cent and a 7 per cent rise in operating profit to £1.46bn.
Looking forward, 2013 should look like 2012 when it comes to earnings. The company has been reporting an improvement in confidence among clients, but on the flipside there's a lack of big events this year compared to last year, with the Olympics, the US presidential elections and Uefa's Euro 2012 all at once.
It's next year when things will get interesting again, with US mid-term elections, the World Cup and the Winter Olympics. In the meantime WPP shares have performed creditably, currently trading at a multiple of about 12.5 times this year's forecast earnings, not terribly demanding by WPP standards. The prospective yield (3.2 per cent) is fair enough, but WPP has been talking about increasing its payout.
That's a good thing. Its executives are extraordinarily well rewarded. Time to share things out a bit better, so small investors benefit a bit more.
I don't see the shares doing much from here in the short term. They are probably more or less up with events, and there could be an argument for taking profits. But I'm minded to keep holding for the long term because if the company can keep the momentum going from 2012 during this tougher year, the stock could take off again in 2014.
Elsewhere, the media sector remains a difficult place. The gorilla in the room, as always, is the internet, which makes life challenging for the sector. Daily Mail & General Trust, the owner of the Daily Mail, said in its most recent update that growth in digital ads was offsetting declines in ad revenue from its print edition.
The company has also been buying back shares, has reduced its exposure to the troubled regional newspaper sector, and is primed for new product launches.
If you're one of the many people who find the right-wing politics espoused by its flagship title difficult to stomach, you'll probably not be all that keen on buying the shares even if they were guaranteed goldmines.
And they aren't, at least not at the moment. The shares are starting to look pricey at 13.5 times this year's forecasts, yielding a prospective 2.8 per cent. As recently as November Morgan Stanley set a 545p price target for the shares, which have smashed through that, and gone on to breach 700p. Now would be a good time to take profits.
The Mail group owns a majority stake in Euromoney, which has found the going tough recently as the troubles of the financial services industry have hit growth prospects and ad revenues.
Some conferences and events have been pushed back, and overall revenues are down. Fortunately for Euromoney, subscription revenues have held up.
The last time this column looked at Euromoney was way back in January 2011, when we said hold at 705p. Despite the difficult climate the shares have put on nearly a third since then. Again, now would be an opportune time to take some profit.
Events are a mainstay at UBM, which once owned the Mail's rival the Daily Express. They account for 74 per cent of earnings before interest, tax and amortisation, with a third of that from emerging markets, and revenues rising by 12.8 per cent a year between 2010-2012. But the trouble with events is they are very sensitive to the economy and can easily be put on hold if sponsors start to feel less confident.
UBM has been under something of a cloud, too, since the sale of the Delta data services division at a price that disappointed. That said, the shares have come off more than 10 per cent in the last month and a half. They trade on 12 times this year's forecasts with a 4 per cent yield and it might be worth a punt at this level. But don't bet the farm.
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