Distributing disposable cups, latex gloves and cleaning products around the world might not be the most glamorous line of work out there, but it hasn’t done long-term holders of FTSE 100 stock Bunzl (LSE: BNZL) much harm.

A steady long-term performer, the shares were up around 400% over the last 10 years before markets opened this morning, highlighting how profitable adopting a ‘buy and hold strategy’ can sometimes be. By way of comparison, the index of which it is a constituent is up 90% over the same time period and that’s from the depths of the financial crisis.

That’s not to say there hasn’t been the occasional wobble. Like all stocks, Bunzl can disappoint investors whose expectations become too great.

Today, the shares have fallen heavily following the release of its latest trading statement and news that the rate of underlying revenue growth has slowed. 

Personally, I think this could be a rare opportunity for new investors to grab shares in a quality company that usually trades on a fairly high valuation.

Before explaining why, let’s take a closer look at those numbers. 

North American pains

Group revenue over the first quarter of 2019 rose 4% or 2.5% once foreign exchange fluctuations were taken into account. 

While the dip in revenue growth was attributed to “mixed macroeconomic and market conditions” in Bunzl’s markets, its operations in North America were singled out as being particularly problematic as a result of “slightly lower sales to customers in the grocery and retail sectors“. 

More positively, Bunzl reported “good growth” in the safety, processor, agriculture and convenience store sectors and underlying revenue growth of roughly 2% in Europe, the UK & Ireland and the rest of the world.   

It also revealed that it had acquired Dutch specialist packaging distributor Coolpack (which achieved revenue of €4m last year) for an undisclosed sum and that its pipeline of potential acquisitions was “promising” with more purchases expected in 2019.

Not quite the car crash that a double-digit percentage fall would imply then, at least in my opinion.

So, what else might be going on?

I suspect a lot of today’s fall can be attributed to profit-taking. Bunzl’s shares have been trading at all-time highs recently, which would explain why many may have regarded the update as a sign to bank at least some of their gains. Anticipation of the ‘sell in May’ effect and the gradual cooling of markets over the summer may also be playing a role.  

Of course, this shouldn’t really bother those investing for years rather than a few months. As far as I’m concerned, the investment case for Bunzl remains solid: a defensive business, supplying dull but essential products to 30 countries around the world that also boasts a long record of raising its annual cash returns to shareholders. 

A forecast yield of 2.3% may look rather measly but the fact that it’s likely to be easily covered by profits (and continue growing) surely makes it a better pick for income investors than many high-yielding stocks in the FTSE 100.  

The shares are also looking increasingly attractive valuation-wise.

Before this morning, Bunzl’s stock was trading around 19 times forecast earnings, already far lower than its five-year average P/E of 24. Thanks to today’s rather severe share price reaction, they’re now even cheaper. 

For me, that’s a reason to load up rather than sell out. 

The post Why I’d snap up this FTSE 100 dividend growth stock after today’s big fall appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That all changed about 18 months ago when the company was required to cut prices to stave off competition. The more recent announcement of a probe by the Competition and Markets Authority (CMA) into the sector only served to compound investors’ misery. Dignity’s share price was 70% lower yesterday than it was back in November 2017. 

While I remain positive on the company as a whole, there wasn’t much in today’s full-year results to suggest that this is poised to spring back to life any time soon. 

“A period of radical change”

Despite a 2% rise in the number of recorded deaths to 599,000, pre-tax profit dived 43% to £40.5m over the 12 months to 28 December as Dignity reduced its prices and unbundled its full-service package so that clients weren’t required to buy everything from the company. 

Good performance from its crematoria division was the only bit of positive news I could find, aside from the business maintaining its total dividend at 24.38p per share (for a trailing yield of 3.4%).

Reflecting on today’s numbers, CEO Mike McCollum stated that last year “marked the beginning of a period of radical change” for Dignity. He went on to say that the firm’s commitment to the quality of the service it provides gave him confidence that the £370m cap will get “ahead of the competitive curve“.

While that remains to be seen, I agree that regulatory pressure can be a blessing to established firms by removing less competent competition, while tacitly endorsing the services of the former. 

Before this morning, Dignity’s stock was trading on a little under 11 times forecast earnings for the current financial year. The fact that the share price (while lower) hasn’t fallen off another cliff suggests that today’s figures were pretty much as expected.

As such, I suspect that those who bought in after recent falls and are patient enough to stand by the company will be rewarded in time. It’s a ‘hold’ for me. 

In the doghouse

Veterinary services provider CVS Group (LSE: CVSG) has also seen its share price collapse over the last year on issues surrounding recruitment and the performance of new acquisitions.

Like Dignity (and based on its January trading update), a sustained recovery still looks some way off. 

Despite reporting a 23.7% increase in total sales over the first half of its financial year, the company “remains heavily reliant on locum cover” and costs relating to this are “well above” those of the previous year.

Combine this with news that its new divisions focusing on Farm and Equine practices haven’t been performing well, a growing net debt position and the prediction that full-year earnings will be “materially below current market expectations,” and it’s easy to see why investors are turned off. 

Nevertheless, this could still be one for patient contrarians. A reduction in locum costs is expected in the remainder of the year and the company has wisely decided to re-evaluate its pipeline of potential acquisitions. Despite recent share price falls, there’s also the fact that the services provided by companies like CVS are likely to remain resilient in the event of an economic downturn. 

The company will confirm its interim results on 29 March. 

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Are the company’s plans to finally enter the home delivery market and “transform online grocery shopping for UK consumers” sufficiently robust for new investors to get involved? Or could there further share price falls to come? Let’s start by looking at today’s deal in more detail. 

Done deal

Under the terms of the agreement, M&S has agreed to pay £750m to acquire a 50% share in the Ocado’s UK retail business. Eighty percent of this will come from selling new shares to investors. 

The rationale behind the deal is that it will allow Marks to benefit from Ocado’s technology and deliver some much-needed growth. The latter will get access to the former’s products, brand and information on its 12m food shoppers from September 2020 “at the latest,” once its current deal with Waitrose expires. The joint venture will trade as Ocado.com.

In addition to generating cost savings of at least £70m per annum by the third year of the deal, M&S CEO Steve Rowe claimed that those currently shopping with Waitrose through Ocado would benefit from his firm’s lower prices. Quite whether consumers will want to make the switch remains to be seen, of course. 

Show me the money!

Transformative or not, all this needs to be paid for. Clearly, news that the company has taken a knife to its dividend is bound to leave some investors smarting. Personally, I wouldn’t feel that aggrieved just yet. 

Following today’s cut, the company intends to pay a final dividend of 7.1p per share. Since M&S has hinted that this marks the beginning of a “resetting” of the dividend, it’s worth applying the same cut to next year’s interim dividend. A 40% reduction from the 6.8p paid in January and added to 7.1p would leave M&S yielding 4.1% in 2019/20. That’s hardly awful.

More questionable is whether M&S is paying too high a price to acquire a 50% stake in a company that only made £80m in profit last year. Rowe doesn’t think so, having stated that the deal allows the retailer to move its food offering online “in an immediately profitable, scalable and sustainable way.” Time is money, and M&S’s leader is clearly in a hurry. 

Not that Ocado’s owner will care. Its shares are up almost 5% today, giving some indication of who the market believes is benefitting the most from the deal. 

How patient are you?

Clearly, M&S had to do something to revive its fortunes following years of falling sales. If market participants wanted decisive action, they’ve got little to complain about now.

But should those following an income and/or value-focused strategy be tempted to catch this falling knife? Only if they already hold a diversified portfolio of stocks, in my opinion.

At 12 times predicted earnings before markets opened this morning, the shares were already fairly reasonably priced but — with so much still to be confirmed —  I wouldn’t expect a sustained recovery to the price anytime soon.

Short-term pain for long-term gain? Whatever happens, today’s deal marked a new, potentially fascinating chapter in the Marks & Spencer story.

The post Is the Marks and Spencer share price a FTSE 100 falling knife worth catching after today’s news? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Based on the market’s early reaction, its seems this fear was justified. 

“Slow to adapt”

To say the numbers weren’t inspiring is putting it mildly. Reported revenue fell 0.8% to £3.76bn in the three months to 30 September. When currency fluctuations are taken into account, growth came in at 1.2% with like-for-like revenue flat. Much of this was blamed on previously-highlighted issues including poor performance in North America (where sales have fallen almost 6% this year). 

This brings reported revenue for the first nine months of 2018 to a little below £11.25bn — down 1.6% on that achieved at the same time in 2017.  At constant currency, revenue was up 2.3%, with like-for-like revenue up 1.1%. 

New CEO Mark Read — brought in last month to replace founder Martin Sorrell who left after many decades at the firm — was clearly keen to make a bold start to his tenure, stating that a reversal in WPP’s fortunes “requires decisive action and radical thinking“. He reflected that the company had been “too slow to adapt” to an industry “facing structural change, not structural decline“. In tune with many city commentators and shareholders, Mr Read also said that WPP had become too complex and had under-invested in core parts of its business over the years. 

Having fallen 45% in value since March 2017, the question is whether the stock is now so hated to actually be considered a decent contrarian investment? 

Worth catching?

It’s clearly going to take some time to turn the beast that is WPP around. In a subdued market, some investors would be understanding. The recent return of volatility, however, means that patience is in even shorter supply than usual. The fact that owners will now need to wait until December for a further update on strategy is asking a lot given that much can happen in economic and political terms in a couple of months. In a sense, today’s double-digit fall isn’t all that surprising.

Nevertheless, there are indications that WPP’s new management is doing what it can to speed a recovery. 

Net debt fell by £925m in the quarter, partly as a result of making 16 disposals (raising £704m) in its aim to become a more streamlined business. Digital agency VML and advertising agency Y&R have been merged since Mr Read’s arrival and a number of key appointments have been made.  Today, the FTSE 100 firm also declared its intention to offload its stake in data group Kantar.

Before this morning, the shares were trading on a valuation of just 9 times forecast earnings (although analysts are now likely to revise previous estimates). Yielding 6.7%, it could be said investors are being sufficiently compensated for their patience, even if the security of these payouts could come under scrutiny if the business continues to struggle. 

With markets becoming increasingly nervous, it’s a brave investor who considers building a stake in any struggling company at the current time, especially as there are less risky options in the top tier right now so I’ll let that falling knife drop.

WPP will likely survive but its new leader has his work cut out. 

The post Is the WPP share price a falling knife I’d like to catch after tanking 15%? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Down over 20% in early trading following the release of its latest set of full-year results, Clipper’s valuation hasn’t been this low since October 2016.

As long as investors can see beyond today’s fall, however, I think this might prove a good opportunity to acquire a slice of what remains a promising growth story.

Decent results but… 

Revenue (£400.1m) and profit (£14.3m) increased 17.6% and 14.6% respectively in the 12 months to the end of April. That’s hardly shabby. Nor was the 16.7% increase to the dividend.

Over the year, the Leeds-based business began new contracts with retailers such as M&S and ASOS as well experiencing “significant growth in activity” with many of those already signed up to its services, including Asda and Morrisons. In line with its strategy of expanding further into European markets, the company also won three new contracts in Poland and will open a second facility to accommodate one of these later in 2018. Factor-in two “immediately earnings-enhancing” acquisitions (RepairTech and Tesam Distribution) and a brand new agreement with Boohoo-owned Pretty Little Thing and it’s hardly tin hat time.

No, today’s dramatic fall might have been prompted by Executive Chairman Steve Parkin’s comment that the company has been required to bring “an element on caution” into its planning as a result of ongoing problems in the retail sector. With trading on the high street continuing to be sluggish, not helped by wider political and economic uncertainty, this seems eminently sensible.

The only problem is that Clipper’s rich valuation relative to industry peers means that any chinks in its outlook will always be punished. Even after taking into account today’s fall, earnings per share of 14.2p for the last year leaves the stock trading on a seriously high trailing P/E of 28.

While I’d wait for things to calm, I certainly don’t think there’s anything fundamentally wrong with Clipper as a business. Having sold my stake for a decent profit some time ago, the company is back on my watchlist.

For those unnerved by today’s fall, however, there are lot of other opportunities out there.

Guidance unchanged

I’ve been positive on £1.7bn cap meats provider Cranswick (LSE: CWK) for quite a while now. Although the shares have been fairly volatile so far this year, I’m still finding it tough to come up with reasons why this shouldn’t be a long-term hold for growth hunters.

Today’s Q1 statement — covering the three-month period to the end of June — was reassuringly surprise-free. With revenue up 3.2% compared to the same period in 2018 and the contribution from exports “modestly ahead“, guidance for the full year was unchanged.

At 22 times forecast earnings for the year, Cranswick’s stock isn’t cheap and perhaps explains the rather lacklustre market reaction to these numbers.

That said, a rock-solid balance sheet (£8m net cash), consistently growing dividends and masses of potential overseas can’t be ignored. Once up and running, a newly-commissioned continental products factory — along with a separate poultry primary processing facility — will also add substantial capacity to support the company’s growth strategy going forward. I remain a fan.

The post Is this small-cap growth stock a falling knife to catch after crashing over 20% today? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That said, today’s 50% fall in the share price of recently listed lifestyle retailer Footasylum (LSE: FOOT) will surely come as a surprise to even the most bearish market participants, particularly given the initially solid-looking numbers in today’s full-year results.

Sales up 

Revenue at the small-cap jumped 33% to £195m over the financial year to 24 February with the company reporting “strong growth across all channels and product categories”. Interestingly, 30% of the latter came from online where sales soared 41%, no doubt helped by investment in the company’s main website alongside launches of sites and apps for Footasylum’s own brands Kings Will Dream and SEVEN.

All told, adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 12% to £12.5m, although margins were lower due to money being ploughed back into the company. Last year saw the creation of a new in-house studio in Manchester alongside the opening of a second warehouse facility in Rochdale and 10 new stores. Staff costs also increased following the 21% jump in headcount over the reporting period to 2,270 employees. 

A profitable company posting decent numbers with a growing online presence. What’s not to like? 

So, why are the shares crashing?

A lot of today’s share price capitulation appears to be down to Footasylum’s outlook for next year. 

In addition to remarking that recent trading had not been immune to the general malaise experienced on the high street, CEO Clare Nesbitt stated that the Rochdale-based firm’s desire to open new stores in order to capitalise on its peak trading period in H2 will lead to higher costs that will restrict earnings growth. Indeed, pre-tax profit is now expected to be roughly 25% lower than that previously expected.

Is the market reaction overdone? I’m inclined to answer in the affirmative.

While I agree with broker Liberum that a reduction in profit guidance is “clearly disappointing” — even more so given that the company only came to the market last November — it surely doesn’t warrant a near halving of the company’s value in a single session. Relative to other retailers such as, say, Mothercare or Debenhams (the latter issued yet another profit warning this morning), Footasylum’s problems appear fairly minor. The company is clearly doing a lot of good things online and it’s not as if its image is staid or tired. Nor is the company ridiculously indebted. Indeed, a cash balance of £11.4m at the end of the last financial year means its balance sheet is in far better shape compared to peers.

Whether the stock will continue to fall or bounce back quickly is, of course, hard to say. Moreover, attempting to predict and capitalise on short-term market movements is counter to the Foolish philosophy of buying quality companies for the long term.

Nevertheless, like retail peer Superdry, Footasylum has now earned a place on my watchlist. A frothy looking valuation of 30 times forecast earnings before today was — in retrospect — clearly too high but today’s (over)reaction could see the shares become something of a bargain once the dust has settled.

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Priced at 970p a pop almost exactly one year ago, the same shares now change hands for just 267p after dipping another 11% in early trading. That’s almost 75% wiped off the company’s value in just 12 months. 

But as buying when everyone is selling can sometimes be very lucrative, is now the time for value aficionados to consider begin taking a closer look?

Profits plummet

System 1 saw revenue sink 18% (17% in constant currency) to just under £27m in the year to the end of March. If you think that’s bad, consider that pre-tax profit slumped 68% to just £1.99m compared to the £6.28m the year before. To describe that sort of financial performance “disappointing” — as the company did earlier today — is something of an understatement. 

The reason for such a dramatic fall was known in advance, of course, with CEO John Kearon confirming that System 1 had been “slow to appreciate the speed and scale of change” in its market. Having ascertained that the marketing budget cuts implemented by its clients were “significant and probably permanent“, Mr Kearon went on to state that 2018/19 would be “a period of transition” for the firm as it attempts to push its “more competitive and scalable offer” in the tough environment.

Considering the push towards low-cost automated solutions is likely to “continue unabated” and the fact that rivals are now adopting the firm’s previously unique approach (using behavioural science to inform marketing strategies) with greater frequency, that certainly won’t be easy. 

Despite the limited revenue visibility, it’s not all doom and gloom. The balance sheet still looks decent with £5.78m left in cash at the end of the reporting period and no debt. The final dividend of 6.4p per share was also maintained, although the possibility of a cut in the future can’t be ignored. 

Having been positive on the company in the past, I admit to being disheartened by the speed of System 1’s decline. While I can see value at this price, it’s clear that the road to recovery will be long and painful. Only patient investors need apply.

Better prospects?

For those who regard System 1 as too risky, small-cap software-as-a-service provider Dot Digital (LSE: DOTD) could be a decent alternative.

Despite some impressive interim numbers in February — including a 25% jump in group revenue (to £18.8m) and 8% rise in EBITDA (to £5.7m) in the six months to the end of September —  the Croydon-based company’s stock has fallen back in recent months, perhaps influenced by the Facebook/Cambridge Analytica scandal. I see this as an opportunity.

Right now, analysts are predicting a 30% rise in earnings per share for the 2018/19 financial year, leaving the stock trading at 19 times earnings. For a business that boasts partnerships with goliaths such as Microsoft and strong international growth ambitions, that looks pretty reasonable to me. Returns on sales and capital employed — a couple of the hallmarks of quality companies — are consistently high and a lack of debt (and cash balance of £10.5m) should appeal to investors who like their holdings to be in rude financial health.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Does an already-low valuation, steady dividend and tough-talking new CEO mean the shares are now a steal? Let’s take a closer look.

Profit warning

Today’s numbers were something of a mixed bag. While group like-for-like revenue grew 3% in the 16 weeks to 28 April, only a 1% rise was recorded in the UK and Ireland. 

Overseas, trading was a little more positive, with growth of 8% and 10% seen in the Nordics and Greece, respectively, although these were lower than in Q3.

Taking these latest quarter numbers into account, reported revenue for the whole company is up 3% year-on-year. Not outstanding, but not altogether awful.

So, why the sharp fall in the share price? It all comes down to profit.

All told, Dixons Carphone is now predicting pre-tax profit of roughly £382m for the year — in line with market expectations. However, this is likely to fall to “around £300m” in 2018/19 with more pain forecast in the UK electrical market not helped by cost increases, such as the National Living Wage. Its UK Mobile division is also expected to suffer as consumers refrain from updating their handsets as regularly as before.

With an outlook like this, it’s no surprise that new CEO Alex Baldock chose to be brutally frank with owners. He stated that the large-cap was “nowhere near” working to its strengths, adding that “nobody was happy” with Dixon Carphone’s recent performance.

On a more positive note, he did remark that the company’s issues were “all fixable” and that a focus on areas such as data analytics, marketing, digital, services and technology were all important to Dixons’ recovery.

In an attempt to turn things around, the business will now focus on “fewer, bigger initiatives” and correct recent underinvestment. Satisfied with its performance in international markets, efforts will be directed on improving trading in the UK with an injection of £30m to give staff “the right tools and the customer an improved experience“. 

Bargain buy?

I’ve been bearish on Dixons Carphone for some time now and, to a point, remain so. The sheer level of competition faced from online rivals coupled with the fragility of consumer confidence can’t be underestimated.

That said, today’s ‘kitchen-sinking’ of bad news does feel like a genuine attempt to draw a line in the sand.

While today’s huge share price fall will be hard to take for those already invested, it’s likely that bargain-hunters will now become even more interested in the shares. Indeed, a forecast price-to-earnings (P/E) ratio of just 9 before this morning suggested that a lot of negativity had already been taken into account by the market. The fact that the full year dividend was maintained at 11.25p per share may even attract patient income investors.

As Marks & Spencer recently showed, effective action by management is often rewarded by the market.  More details on how the company intends to turn itself around are expected next month with a full plan of action due in December. Since expectations are now very low indeed, I think any hint of an improvement in trading could see Dixons Carphone arrest its share price decline.

The post Is the Dixons Carphone share price a falling knife to catch after plummeting 20%? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Given that the stock was already changing hands on a fairly frothy 19 times expected earnings before today, it may be argued that this price fall was somewhat inevitable.

Personally, I think this is a great chance to take a position in what remains a fine business.  

Golden opportunity?

As a result of “weaker market conditions” in March and April, sales rose 4.7% over the first 18 weeks of the year, down from 7.4% in 2017. At just 1.3%, like-for-like sales growth at company-managed shops was pretty much only a third of that achieved over the same period in the previous year (3.5%). The latter was also a decline from the 3.2% reported for the first eight weeks of 2018 — something Greggs blamed on a combination of weaker footfall and poor weather.

Despite experiencing a recovery of sales in the first few days of this month, the baker stated that it was “cautious” going forward as a result of uncertainties and that underlying full-year profits would now be “at a similar level to last year“.

While it can sometimes be wise to wait until emotional sellers have dispersed, this is one knife I’m tempted to catch. Greggs is a well-run company with a huge 1,883-store estate that isn’t restricted to high streets, a net cash position and enviable returns on capital. Taking into account today’s fall — and assuming analyst forecasts aren’t changed dramatically — there’s also a 3.2% yield, easily covered by profits.

Buying what others are selling is never easy but I think this could be a very rewarding strategy as far as Greggs is concerned.

Slowing sales

Also reporting today was pub chain JD Wetherspoon (LSE: JDW). Like-for-like sales growth “slowed slightly” to 3.5% over the 13 weeks to 29 April — some of which the company attributed to the early May bank holiday not being part of the period in 2018. Total like-for-like sales growth for the year to date is now 5.2%. 

On an operational level, the firm has opened five new pubs in the current financial year (with one more scheduled before the end of July) and sold 19. It has also spent millions on buying pub freeholds and on buying back its own shares.

Chairman Tim Martin was on predictably forthright form. Likening the EU to “a protection racket,” he took the opportunity to reiterate his belief that the UK should leave the EU’s customs union after Brexit, allowing for taxes on non-EU food and drink imports to be stripped out.  

While many of JD’s owners might agree with him, they may be more concerned by his comment that the company faces “significant cost increases” in the remainder of the financial year relating to business rates, staffing and the introduction of the sugar tax. Mr Martin’s less-than-bullish comments on the effect of the forthcoming FIFA World Cup on trading may have also raised a few eyebrows.

Shares in the firm are up 46% in the last year. Given that they now trade on a not-exactly-cheap (relative to other pub chains) valuation of 16 times earnings and a negligible 1% dividend yield, I’m inclined to think that Greggs looks a far more attractive option at the current time.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After 33 years at the helm, Sir Martin stepped down in response to a now-completed investigation into an allegation of misconduct, specifically the use of what WPP has now labeled “immaterial” amounts of company money. The £15bn-cap has confirmed that he will be treated as having retired and that chairman Roberto Quarta will take over while a search for a new CEO is conducted.

In a statement, Sir Martin remarked that he was “sad to leave” but that it was in the best interests of the business for him to do so.

Annus horribilis

Sorrell’s untimely departure is the latest setback to hit WPP. The company has struggled in recent times as a result of a cutback in marketing spend by consumer goods companies and brands migrating towards tech titans Facebook and Google. Indeed, in its most recent set of full-year results, the now-departed CEO reflected that 2017 had not been “a pretty year” for the business.

The challenging trading environment hasn’t gone unnoticed by investors. Taking into account today’s additional drop, just over 40% of WPP’s value has been wiped in a little over a year. Contrast that with the mere 1% fall seen in the FTSE 100 and we have yet another illustration of how volatile shares in individual companies can sometimes be and the importance of building a suitably diversified portfolio.

Reasons to be cheerful

So, will WPP ever recover? Clearly, the loss of Sir Martin is a seismic event. Having built the company from scratch (becoming one of the longest-serving FTSE 100 CEOs in the process), Sorrell was a much-respected figure, even if his record-breaking pay packets angered many shareholders.

Nevertheless, there may be cause for optimism. At 73 years of age, Sorrell’s departure was at least somewhere on the horizon, even if the manner in which he left the company was unexpected.

Although investors hate uncertainty in general, this development has at least brought forward the inevitable search for a replacement. In a sense, this should give holders some comfort. It would also be a mistake to presume that a market-leading company is incapable of thriving following the departure or loss of an inspirational leader — Apple being one such example. 

While Sir Martin’s replacement will have some difficult decisions to make, the company’s relatively new strategy of simplifying its operations looks prudent. So long as it’s able to transform from “a group of individual companies to a cohesive global team” — as intended by Sir Martin — the long-term picture for WPP surely isn’t all that bad. This is assuming, of course, that its board and investors decide against breaking up the company.

And the stock? Based on current forecasts, WPP’s shares change hands on a forward price-to-earnings (P/E) ratio of 10 and come with a seemingly well-covered 5% yield. That should be enough to at least interest both value and income hunters, even if many might wait until after Q1 numbers are released at the end of this month before taking a position.

So long as it truly can adapt to a changing market, I think WPP could be a great buy at these levels.

The post Will the WPP share price ever make a successful comeback? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.