Investment: WPP looks on the bright side

SPARE A thought for Martin Sorrell. Earlier this year the chief executive of WPP, the advertising giant, pocketed the final tranche of shares in his controversial incentive plan. Since then, however, the shares have plunged 40 per cent on fears that the global advertising industry is heading for a slowdown.

Not that WPP has issued any warnings. In fact, Mr Sorrell has done the opposite, stressing that he still expects the advertising market to grow next year. Yesterday, he backed his predictions with a robust third-quarter trading update which showed revenues rising 11 per cent - 15 per cent in constant currencies - in the three months to September.

To be fair, the market cares little about this year's figures. The main worry is that, if billings go into reverse next year, the fixed cost base which has helped WPP boost margins in the past few years will become a millstone.

But investors are probably being overly pessimistic. To begin with, WPP thinks the overall market will still grow by 4 per cent next year, and reckons strong brand names such as Ogilvy & Mather and Hill & Knowlton will help it stay ahead of the crowd. WPP also points out that 6 per cent of its cost base is spent on freelance staff and performance-related pay - factors that will quickly be cut if revenues start to fall.

What's more, WPP now has a spread of activities ranging from consultancy to public relations which will protect it if it loses one or two large accounts. A focus on fast-growing industries - underscored by yesterday's acquisition of technology PR firm Alexander Communications - will also help.

Profit forecasts were unchanged yesterday, putting the shares - up 2.5p to 272.5p yesterday - on a multiple of just 14 times 1999 earnings. They are good value.