WPP12 Apr 2011 08:01
WPP under pressure over fears of ad cuts
By Bryce Elder and Neil Hume
Published: April 11 2011 08:43 | Last updated: April 11 2011 20:41
WPP was out of favour for a fifth successive day on Monday on concerns about renewed pressure on advertising budgets.
Advertising agencies look vulnerable to cuts from carmakers and packaged goods groups, which together account for about 50 per cent of revenues, UBS analysts said.
They argued that growth, particularly in Europe, is likely to be worse than expectations and could trigger forecast downgrades by the time of WPP’s next trading update on April 28.
Broadcasters globally have reported that consumer goods groups were cutting marketing budgets rather than passing on higher costs to customers, UBS highlighted.
And, while ad agencies have yet to report the same trend, there tends to be a one quarter delay between agencies and broadcasters, it said.
Meanwhile, car advertising suffered a blip in the second quarter after the earthquake in Japan, UBS continued.
Spending should recover but the blip adds another layer of uncertainty to growth prospects, it said.
WPP lost 1.9 per cent to 746½p. The shares, at 12.5 times earnings expectations, were not expensive on an absolute basis but remained vulnerable to a change in sentiment given the company’s high exposure to Europe, UBS said.
Banks helped keep the wider market steady near a seven-week high after the UK’s Independent Commission on Banking’s initial report on the sector proved more benign than feared.