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WPP upgraded by Credit Suisse on ad market recovery, but S4 Capital is better bet


WPP PLC (LON:WPP) shares have been given a boost by Credit Suisse, which upgraded the stock to ‘neutral’ from ‘underperform’ amid a record recovery in the advertising industry. 

The Swiss investment bank, which hiked its target price to 1,060p from 835p, said structural concerns about the FTSE 100 group’s agency holding companies “have taken a back seat” as government stimulus and recovery in some pandemic-impacted sectors kick in.

The advertising company is also taking steps to address the challenges posed by the structural shifts in marketing, analysts reckon.

“With both GroupM and MAGNA significantly increasing 2021 forecasts (to mid-teens) and predicting a record advertising recovery, structural concerns about agency holding companies have taken a back seat.

“This could continue for some time as government stimulus and recovery in some pandemic-impacted sectors such as travel, telecom, media & entertainment and retail kick in,” the analysts wrote.

Industry challenges for WPP remain, they added, with creative fee pressure, increased competition from consultants and new entrants and potential disintermediation.

However, progress made by the company includes simplifying the business post the departure of Martin Sorrell, with nine creative networks to 4,500 brands to 220, with “digital leadership inserted into analogue agencies”, and management’s plan to increase transformation mix to 40% from 25% over five years.

However, Credit Suisse suggested the best way to gain exposure to the marketing subsector is Sorrell’s new venture, S4 Capital PLC (LON:SFOR), where the bank has an ‘outperform’ rating and target of 680p, “given its multiple levers for market share gain” and where M&A alone “could add circa 45%” to EBITDA and 30% to valuation, based on the analysts’ forecasts.

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