If yesterday's fall in WPP's share price was the result of an advance leak to analysts of the group's half year results to be announced next month, it should come as no great surprise. The group had already acknowledged that revenues were behind expectations and margins were under pressure. (see WPP's profit being squeezed between lower revenues and higher costs). And the timing of the Taylor Nelson acquisition has probably had an adverse effect too as market research seems to be suffering particularly badly from the economic decline (see Cello warns of reduced out-turn for year). What matters almost as much is the performance of the group's core networks. Are they losing revenue faster than their competitors large or small? And how is WPP's balance sheet standing up to the economic turmoil? With its stock market capitalisation of £4.8 billion now standing far below the book value of the group's net assets of roughly £6 billion, someone somewhere is going to start making the observation first mooted in this blog a month ago: if the market value of the whole is so much lower than the book value of the component parts, either the net assets will need to be devalued or maybe WPP should contemplate shedding some of the parts?
But most important of all, for decades WPP has demonstrated that a UK company (technically now an Irish company) can build a major global force in the marketing services sector. Any serious setback would be bad not just for WPP and its shareholders but also for confidence in the sector as a whole. And no-one should be wishing for that. © Fintellect Ltd
As some observers make their first very tentative noises about economic recovery being on the horizon
As anticipated, WPP Group’s results for the first half of 2009 tell a sorry tale with profits earned
BOB WILLOTT
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