Strong sales set WPP on acquisition trail

WPP, the advertising and communications group run by Martin Sorrell, yesterday reported a strong first three months' trading and said it remains committed to seeking more acquisitions in emerging markets.

The growth plan came despite falling profits in Asia Pacific and Latin America in the first three months of the year. The company said that while Asian markets are stabilising, Latin America is more difficult, with Brazil a particular problem.

WPP's first-quarter revenues rose by 10 per cent, with new billings up by the same amount to pounds 447m. The US and continental Europe were the strongest regions.

Public relations and information consultancy were the best performers with revenues up by 24 per cent and 19 per cent respectively.

The group, which owns the Ogilvy & Mather and J Walter Thomson advertising agencies, is also on track to improve margins from 12.8 per cent to 13.4 per cent.

WPP shares rose another 6.5p to 566.5p on the news, just below their 12-month peak. They stood at little more than 200p late last year.

The shares' good run has been boosted by a return to popularity in cyclical plays underpinned by the receding fears of recession.

Improving consumer confidence is clearly good for advertising billings and although the shares succumbed to a bout of profit taking on the full- year results in February, the economic picture has improved considerably in the last two months.

As one analyst put it: "The good thing about WPP is that you get the best of both worlds. You get a cyclical play as consumer economies improve. But you also get a growth stock as it expands its interest in growth sectors like specialist communications and Internet advertising."

WPP makes much of its position as a global player winning international accounts from major clients such as IBM and Ford. It is also keen on keeping costs low, with an increasing emphasis on incentive payments for staff rather than fixed salaries.

House broker WestLBPanmure is forecasting full-year profits of pounds 240m.

That puts the shares on a forward multiple of 28. That is about in line with the FTSE 100 but after such a strong run it is hard to see the shares making much more headway from here.

WestLB Panmure regards the stock as a solid hold with earnings growth forecast at 10 per cent.

But there is also a strong argument for locking in profits.