WPP sees £1bn wiped off share price after guidance

The world’s largest advertising group said like-for-like revenue had grown in line with forecasts, at 3.5 per cent, and was up to 5.7 per cent in January, by the main industry measurement.

But its guidance for growth in 2014 headline operating margins – 0.3 margin points, excluding the impact of currency – was shy of expectations of 0.5 points. It said 2013 growth had been hit by exchange rate volatility in its emerging markets.

WPP’s forecast of organic revenue growth of over 3 per cent for 2014 was also seen as below expectations.

Its shares, which had risen over the last month, fell 6 per cent, wiping just over £1bn off its shares and cutting market capitalisation to £16.8bn, as analysts said the revised guidance would hit expectations for 2014 earnings per share.

“We have the same (long-term margin) target, it will just take us longer to get there,” chief executive Martin Sorrell said. “The reason is pressure from clients in terms of they want more for less, and a lot of competition and competitive discounting in media pricing.”

Analysts said the improvement in organic revenue growth throughout 2013 and into January had been encouraging, but that the hit to margins was a surprise for investors, who had come to expect continual earnings upgrades from WPP.

On the plus side, the group said its estimated net new business billings were up 57 per cent on last year as its two biggest rivals, Omnicom and Publicis, focused on their merger, which will make them the largest ad group in the world.

WPP has recorded strong business growth in recent quarters, as analysts believe it has a chance to poach blue-chip clients from the new agency, which could face conflicts of interest.

Publicis reported a slowdown in trading in the fourth quarter, while Omnicom ended the year well.

WPP increased its share buyback programme to 2-3 per cent of the share capital against the current 1 per cent, while the dividend was up 20 per cent to 34.2p.

“Something of a mixed bag at first take,” Jefferies analysts said. “All in all, a creditworthy print, though perhaps not enough to keep the bulls happy.”