3 UK Stocks on the Global Value List

Morningstar equity analysts have released their list of the top undervalued stocks from across the globe - and 3 UK firms make the cut

Alex Morozov, CFA 6 November, 2017 | 3:26PM

WPP (WPP)

WPP, the world’s largest ad holding company, is on our Best Ideas list, as we think the stock’s recent decline has created an attractive entry point for this narrow-moat name. The shares are trading at a discount to our £16.40 fair value estimate. At current levels, WPP's dividend yields 3.5%. While we have been cautious regarding WPP and its peers, the selling is overdone, in our view. We think that what appears to be a slowdown in ad spending is driven mainly by geopolitical uncertainties that may have discounted the expectation of enduring moderate economic growth.

Further, we believe that during the possible slowdown, WPP can maintain its operating margin at its current 14%-15% level and reward its shareholders via dividends and share buybacks. The latest U.S. GDP and monthly economic figures provided some assurance that the economy will keep growing modestly despite the negative impact of hurricanes Harvey and Irma in the third quarter.

The European Union’s third-quarter economic numbers also have been reassuring. The annualized growth rate for the United Kingdom remained steady. While we view the latest indications as positive for the year, management has remained conservative and after releasing its third-quarter sales update lowered its 2017 organic growth guidance to flat from 0%-1%. We think WPP can maintain the 14%-15% operating margin range as it continues to streamline its agencies’ account management and increase efficiency in overall operations.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Imperial Brands PLC1,400.00 GBX-0.36
Royal Dutch Shell PLC B1,188.80 GBX0.64
WPP PLC585.60 GBX1.74

About Author

Alex Morozov, CFA  Alex Morozov is the director of the health-care team at Morningstar.

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