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I wish to preserve an open thoughts with regards to UK shares, however some nonetheless instinctively fear me, together with these two FTSE 100 giants. I’ve by no means owned both, however I’ve been sorely tempted at occasions. Fortunately, I didn’t seal the deal.
One title that has caught my eye is international promoting and media group WPP (LSE: WPP). It’s been beneath strain since founder and driving pressure Sir Martin Sorrell exited beneath a cloud in 2018. The shares have misplaced 28% of their worth over the previous yr and now commerce at a 10-year low.
I’m afraid of the WPP share worth
I used to be tempted as a result of the inventory appears low-cost, with a price-to-earnings ratio round 10.5, and presents a juicy trailing yield of seven.5%. That’s one of many highest on all the FTSE 100. This profile suits a lot of my latest share purchases, however I’ve to attract the road right here.
Alongside its personal missteps, WPP can be on the mercy of deep market shifts. Probably the most urgent is synthetic intelligence. Outgoing CEO Mark Learn just lately admitted AI is “completely disrupting our enterprise”. That’s a worrying word for the boss to finish on.
AI instruments now enable firms to generate inventive content material in-house, doubtlessly decreasing demand for conventional media companies. Whereas WPP was an early adopter of the expertise, I’m not satisfied it will possibly keep forward of the curve.
It has already misplaced its crown because the world’s largest promoting agency by income to France’s Publicis. Now it faces renewed strain from the continuing $13.25bn merger between US rivals Omnicom and Interpublic Group.
WPP isn’t in freefall. Q1 outcomes launched on 25 April confirmed reported revenues down 5% to £3.24bn, and simply 0.7% decrease on a like-for-like foundation. However the path of journey stays unclear, and I want to keep away from companies in the course of existential transitions. The brand new CEO, as soon as appointed, has to get it proper.
Vodafone shares set off me too
The opposite inventory I’ve lengthy averted is Vodafone (LSE: VOD). I’ve been writing concerning the telecoms large for greater than 15 years, and whereas its chunky dividends have typically tempted me, the share worth’s relentless decline has saved me at arm’s size.
There are causes to be extra constructive in the present day. CEO Margherita Della Valle’s turnaround plan is making extra seen progress than earlier efforts, and the Vodafone share worth has climbed 7% over the previous yr.
Sure, the dividend was halved in March, however the shares nonetheless supply a strong trailing yield of 5.1%, which is comfortably above the FTSE 100 common.
Full-year revenues rose 2% to €37.4bn, and one other €2bn share buyback has lifted sentiment. The merger of Vodafone UK with Three must also unlock operational advantages.
However that is nonetheless a brutally aggressive sector. Vodafone faces margin strain from low-cost rivals throughout key markets. And though it diminished web debt by €10.8bn in 2024, it nonetheless owes a hefty €22.4bn. That’s severe baggage as rates of interest show sticky.
It should proceed pumping billions into 5G and fibre infrastructure, whereas nonetheless struggling in Germany regardless of investing €20bn there.
Vodafone is displaying indicators of life, however like WPP, I don’t need it let it get too near my portfolio.
