- S4’s shares are down 62% year-to-date
- Full year expectations revised lower again
- Like-for-like revenue growth from top 20 clients of 8.9%
Shares in S4 Capital (SFOR) fell by nearly 25% to 72p as the advertising group once again warned on profit ‘following slower than expected trading over the summer months’ and ‘current client activity levels.’
The second profit warning since July came as the firm reported an operating loss of £6.4 million for the six months ending 30 June 2023 compared to an operating loss of £75.4 million in the same year ago period.
Net revenue was up 18.7% to £445.5 million or 5.1% like-for-like change ‘reflecting the challenging macroeconomic conditions.’
The firm, headed by industry veteran Martin Sorrell, now expects like-for-like net revenue to be down on the prior year and operational earnings before interest, taxation, depreciation and amortisation (EBITDA) margins targeted to be in the range of 12% to 13.5%.
S4 Capital’s previous profit warning two months ago was down to a slowdown in spending from its technology clients.
The firm’s latest wrning pushed big advertising sector player WPP (WPP) down nearly 2% to 759p in morning trading.
Russ Mould, investment director at AJ Bell said: ‘Advertising agencies are at the mercy of the economy. In bright times, companies are prepared to spend big to promote their products and services. In harder or uncertain times, those budgets are pared back, which means companies like S4 Capital will find it harder to grow fast.
‘Martin Sorrell’s digital advertising agency is currently suffering from subdued client activity – its customers are worried about recession, so they are cautious about signing off big advertising campaigns.
‘This is not a new trend for S4 as it has been moaning about the state of the market for some time. However, the latest downgrade to earnings expectations has caused yet another sell-off in the share price, down a further 20%.
‘S4’s shares are now down 69% since their year-to-date peak in February, illustrating how its fortunes are going from bad to worse.’
LONG TERM OUTLOOK
Things are not looking rosy in the long-term for the advertising group, as it said ‘net debt will rise in the second half of 2023 reflecting payments for prior year combinations. Our expected range for the year end is £180-220 million.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Daniel Coatsworth) own shares in AJ Bell.
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