WPP Valuation Gap Widens as It Faces Client Reviews, Asset Sales

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(Bloomberg) -- WPP Plc is looking cheaper than its advertising peers by some way. But bargain hunters will need to weigh carefully the formidable challenges faced by whoever ends up taking the helm after the abrupt departure of Martin Sorrell.

Any attempt to close the current discount to rivals -- including Publicis Groupe SA and Omnicom Group Inc. -- with asset disposals and strategic changes will happen at a time when client contract reviews are expected to ramp up.

“2018 should see significant activity in account reviews,” Barclays analysts led by Julien Roch wrote in a report on Monday, noting earlier comments by France’s Publicis. “Regarding WPP, the uncertainty created by a CEO transition might impact its chances of retaining or winning accounts, especially as it seems to be the agency group with the most to defend.”

Following several guidance downgrades last year, a gap has opened up in the price-to-earnings multiple of WPP and its next-cheapest rival Publicis. WPP trades below 10 times its earnings, compared with nearly 17 times during its recent peak in 2015, according to Bloomberg data. U.S.-based Omnicom and The Interpublic Group of Companies Inc. remain ahead, even after malaise in the industry dragged the multiples to about 13 times earnings from 16 times a year ago.

WPP shares fell as much 6.9 percent on Monday after the resignation of founder Sorrell, bringing the losses of the past 14 months to more than 40 percent. While valuations of the four main advertising companies have fallen across the board amid client budget cuts as well as the perceived threat from consultancies and internet giants, none have suffered as much as WPP, partly due to its larger exposure to consumer-goods companies such as Unilever and Procter & Gamble Co.

Publicis may provide further insight on the state of the advertising industry with its first-quarter revenue release scheduled for Thursday.

©2018 Bloomberg L.P.

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