WPP SCANGROUP KENYA – RANDOM THOUGHTS

WPP Scangroup limited, formerly Scangroup limited, is engaged in the provision of marketing communication services. The Company offers services in over six disciplines, including advertising, medical investment management, advertising research public relations, digital advertising and specialty communication. Its advertising services are offered through Ogilvy Kenya Ltd. and MEC. Africa Ltd. among others. Its media investment management services are offered through Milward Brown West Africa Ltd and Milward Brown East Africa Ltd, among others. The public relations services are offered through Ogilvy Public Relations Ltd and Hill & Knowlton Strategies Nigeria Ltd among others. The digital advertising is offered through Squad Digital Ltd and Squad Digital Nigeria Ltd.

The specialty communication is offered through Roundtable ltd.

  • Global advertising giant WPP owns 56.3% of WPP Scangroup Kenya.

CEO Bharat Kumar Thakrar also owns 10.48% of the company. This means both have a combined stake of 66.78% in the company. The remaining 33.22% is owned by outsiders; equivalent to 144 million shares. Currently Scangroup trades at KShs. 7, this makes the value of shares owned by outsiders at KShs. 1.01 billion.

  • On 27 April 2018, global marketing giant WPP sought to increase its ownership from 46.69% to 56.25% by acquiring an additional 53.2 million shares in WPP Scangroup at a price of KShs. 17 and the transaction was successfully executed by July 2018. For the years ending 31 December 2018 and 31 December 2019, WPP Scangroup has paid a total DPS of KShs. 12 effectively making the cost of acquisition of extra shareholding in WPP Scangroup Kenya KShs. 5 per each share owned.
  • Current WPP Scangroup market value of KShs. 3.16 billion is less than the adjusted cash balance without special dividend of KShs. 3.98 billion. This narrows to KShs. 9.22 per share.
  • WPP Scangroup Kenya can comfortably invest KShs. 3 billion in treasury bonds currently earning approximately 12% annually. This will mean around Kshs. 360 million guaranteed interest income annually. This works to around Kshs. 0.83 guaranteed EPS. Notably, the above is purely with no advertising done on the part of WPP Scangroup Kenya Plc.
  • It’s worthy to note WPP Scangroup Plc is debt free. If were to sell all its current assets and pay all its liabilities, its shareholders would still get Kshs 18.27 per share. In effect it means shareholders won’t need to pay anything for the fixed assets owned by WPP Scangroup PLC. Adjusted for special dividend, net working capital per share is KShs. 10.27.
  • WPP Scangroup Kenya normally pays around KShs. 1 as DPS. The current dividend policy is expected to continue given WPP Scangroup is a cash-rich company. Effectively buying at KShs. 7 entitles shareholders to 14% return on invested capital, which is double the average annual inflation rate of past ten years of 6.68%.

Notably, market irrationality has driven the share price to illogically low prices. Each decline in share price of WPP Scangroup makes it more likely than ever that WPP global will attempt, to take over WPP Scangroup. Therefore, the current price range of KShs. 7 is a good entry price to buy the Scangroup Kenya Shares.