View from City Road: WPP begging bowl out again

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IF THERE is a limit to Martin Sorrell's cheekiness, WPP shareholders have yet to find it. The advertising group where he is chief executive yesterday held out the begging bowl to raise pounds 88m via a four-for-five rights issue at 45p to repay a pounds 105m bank loan. Doubtless, investors will remember this is the third time Mr Sorrell has had the nerve to ask for support in as many years.

Twice before they have had to stomach a refinancing because he repeated the mistake of his previous employer - Saatchi & Saatchi - with an expensive acquisition spree at the height of the 1980s advertising boom. While Mr Sorrell continues to run the company virtually unscathed, WPP shareholders have seen a massive dilution of their stake in return for their fortitude.

In spite of the capital injections, the group's balance sheet looks poorly. Total debts at the end of last year amounted to about pounds 400m and it faces almost pounds 80m in further earn-out payouts in the next two years. By way of reassurance, the board says it is continuing 'to explore asset sales and refinancing options' to reduce debt further. Shareholders can only hope they will not be called on again.

However, WPP has sugared the pill with a promise to pay a dividend of 1p this year. Judging by the share price, up 10p to 70p, the market believes it is on the right track to recovery. At the operating level, WPP's advertising agency continued to perform well in a difficult economic environment. Helped by almost 6 per cent revenue growth, profits before exceptionals rose by 40 per cent to pounds 54m.

With taxable profits of about pounds 60m likely this year, the shares are trading on 14 times earnings. Though investors have so far supported rights issues strongly - about pounds 2.4bn has been raised this year - their appetite must soon be sated. Investors should sell their WPP rights in the market.

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