Shares in leading media agency WWP Aunz Ltd (ASX: WPP) have fallen more than 20% since they warned less than a month ago that full year 2017 profits would be marginally down from last year's $121m. I think that yield or special situation investors should take a very close look at it.
WPP Aunz was formed in early 2016 following the merger of global leader WPP's Australian and New Zealand assets with STW Group to create the region's larger advertising and media communications group.
The group acts for a vast range of blue-chip clients, including Westpac Banking Corp (ASX: WBC), Vodafone and Westfield Corp Ltd (ASX: WFD).
Notwithstanding the well publicised woes of traditional media plays like Seven West Media Ltd (ASX: SWM) and Fairfax Media Limited (ASX: FXJ), WPP is agnostic about the form that advertising takes. It has been adept in advising and winning business in the digital space, which is growing at 7%-8% p.a.
The fact that WPP Aunz is 61% owned by WPP make it under owned by local institutions. This creates a value opportunity for private investors, with the stock trading on a P/E of just 9x.
However, the real opportunity here, is the obvious takeover potential. An acquisition of the WPP Aunz minority by WPP is likely to be earnings enhancing to WPP.
There is no suggestion either that the terms of any future offer would be oppressive to minority shareholders in WPP Aunz. This is already evidenced by the merger of its interests with STW, which created value for all concerned.
In the meantime, WPP should pay a fully franked 6c dividend for the year to December 17, which is a tremendous grossed up yield of 10%. There is no suggestion that this dividend is under any threat.
Foolish takeaway
I believe that investors should be tucking WPP away in their portfolio for yield alone, and patiently wait for WPP to make its move at some point in the future.
