In 1995, Hollywood released a movie called Hackers which created a cult following culture for rebellious techo geeks to get attention from hard working sensible adults. Hacking today can be very damaging to large corporation where years of hard earned reputation can be demolish in matter of days. When the British telecom company ‘TALKTALK’ got hacked, 157,000 customer data was stolen and the companies lost approximately £60m worth in customers, sales, compensation and damages. When ‘SONY’ playstation network got multipled-hacked scandal and almost 4 weeks of lost operations, the company lost up to $171m worth of damages. No one understands how much damage are expected for WPP during the June 2017 hacking scandals.
Who is WPP PLC? A British born company with a portfolio of multinational advertising and public relations company with offices in every major city in the world.
How much damage can this hack scandal threat pose on an advertising company? Unless all the data of customers are leaked with confidential information. According to the release statement this is a malware attack, which means intrusion of foreign software which disrupts daily operations. This indicates that the malware attack may have disrupt schedules for client projects for a few days only and perhaps take up to a few months to restore loss information, rework and re-establishment.
For future one key expenses and liabilities for WPP is to invest and upgrade their cyber security infrastructure to ensure the same does not repeat again. If it repeats for a second wave, the damages may be pose a significant impact. The main problem with WPP is the multi sub-companies with different IT security structure and policy may vary form sub division to another. Establishing a standard level of cyber security can be time consuming and expensive. This form of multi-million pound investment does not actually increase the value of the company or improvement to operating efficiency.
On the contrary, the malware attack does not actually change the financial model or the business strategy. With an expected Net income of $1.6-1.7bn for 2017, the liabilities of the damages for the hacking scandal prehaps mount from $50-80million worth of damages. This still looks like a drop in the ocean compared to the expected net income. No reasons to cut dividends, downsize the company or close any of its subsidiaries.
During the Brexit of June 2016, WPP drop to as low as 1504GBX and it is currently sitting around the same figure. Post Brexit, WPP return to a record high of 1900GBX in less than 9 months. If Brexit was a stress-test indicator, it shows that the hacking scandal may be slightly over sold for its actual damage impacted. It takes time to recover the damages but business still goes on. TALK TALK and Playstation, may have lost customers to its rival competitors but who is WPP going to lose its customers to?
Healthy growing cash flow, increasing dividends, fantastic CEO, common stock consistent and steady business model. For long term steady patience growth and dividend reinvestment, WPP is a no brainer at under 1600GBX. If you are looking for quick profits and sudden increment for quick get rich scheme, perhaps you should consider Sound or Hurricane energy or Sirius Minerals.