Broker snap: UBS downgrades WPP on macro risks

24th Oct 2012 10:07

UBS has cut its recommendation for media and advertising giant WPP, saying that a macro slowdown poses a risk to expectations."We downgrade WPP from 'buy' to 'neutral' given risk to management and consensus FY forecasts and read across of slowdown from peer Omnicom and companies such as GE," the broker said.WPP, run by frontman Sir Martin Sorrell, is to release its third-quarter results on Thursday. UBS expects the company to report organic growth of 2.5% ("-3% FX and +3% acquisition") taking revenues to £2,518m.The broker reckons that WPP could reduce its full-year forecast of 3.5% organic growth.UBS said: "We argue there is downside to FY12e consensus, but larger risk to sentiment. We think FY12e consensus organic of 3.5% could reduce to 3%, having just reduced from 4% at interims. We adjust our forecast to 2.9%. "In addition, consensus expects 50 basis point (bp) margin expansion to 14.8%, taking consensus earnings per share (EPS) to 74p, however we reduce our forecast to 40bps taking margin to 14.7% and EPS to 72.5p, a total reduction of 1.5% to our FY12 EPS forecast."However, the broker said that there could be potentially larger headwinds next year: "We reduce our 2013 forecasts given potential slowdown in US and Asia which appears will not offset EU weakness as much as we had expected."UBS's target price for the shares has been cut from 960p to 875p.By 10:07 on Wednesday, shares were down 1.34% at 809.5p.BC