WPP offers buying opportunity for Nomura ahead of results

16th Jul 2015 14:38

(ShareCast News) - There are now four reasons to buy media colossus WPP, said Nomura, in light of the sector's underperformance against the European benchmark Stoxx 600 index by 4% since May.Investor concerns have been dominated by the $20bn of account reviews due and relatively weak recent recent growth estimates, but these appear overdone and Nomura regards this as a buying opportunity for the FTSE 100 group.Feedback from the Japanese bank's recent New York media summit was that WPP, which recently picked up Tesco's ad buying account in the UK, was well positioned to win new client accounts thanks to its larger scale and high-quality digital assets.Despite expectations for a subdued second quarter of just 1.9% organic growth and with its second half estimate of 4.3% "arguably having downside potential", Nomura said it still believed full year earnings per share (EPS) consensus estimates were "relatively secure" due to primarily to the potential for margin growth to bounce back after a £128m restructuring charge taken in late 2014.Furthermore, analyst William Mairs believes the market is overlooking the value of WPP's associate investments, which, he estimates at £1.8bn or 10% of WPP's market capitalization.He sees two catalysts that may aid in the market correctly pricing these assets: a potential £1bn acquisition of Dunnhumby from Tesco and a potential IPO of AppNexus with a valuation of around $2bn, which would both raise further attention on these associate assets.With WPP trading at a price of 16 times forecast 2015 earnings, a 5% discount to Publicis and a 5% discount to its last five-year average p/e relative to the market, "the stock screens as good value".What's more, WPP also delivers a 2.9% 2015 dividend yield combined with a 7% FCF yield and11% full year EPS growth.