WPP, the world’s largest advertising agency, has appointed its next CEO. The news came a day after a disappointing trading update sent shares down 18% on July 9.
The current CEO Mark Read will be replaced by Microsoft executive Cindy Rose, who has served as a non-executive director at WPP for six years.
Read announced in June that he would step down from his role at the end of the year after a 30-year career at the ad agency.
Shares rose slightly on the news, but the company is down 46% year to date, and the July 19 selloff reflected rising concerns over macroeconomic headwinds and weaker client demand.
In the trading update, the group cut its profit forecast, saying it now expects its headline operating profit margin to fall by 50 to 175 basis points, with first-half profits trending between £400 million and £425 million.
Morningstar analyst Mark Giarelli recently downgraded WPP to a “no moat” rating from “narrow,” while cutting the fair value estimate from 670p to 640p.
Morningstar’s Giarelli says recent missteps call for a reset at WPP, and Morningstar believes the company is in a worse competitive position than Publicis, Omnicom, and IPG.
Even so, Giarelli argues the broader advertising sector is severely undervalued. In his view, investors are over-extrapolating the threat from AI, because AI may struggle to generate truly original ideas.
WPP’s shares jumped 3.2% when the market opened, yet according to Morningstar metrics WPP is still undervalued - trading at 442.30p, well below Morningstar’s fair value estimate of 640p.
