Shares in digital advertising group S4 Capital (SFOR) dipped 1.2% to 665p despite news its Media Monks division was merging with Italian creative media agency Miyagi.
S4's phenomenal growth in revenues and earnings has been driven by a rapid-fire series of merger and acquisitions. Since its inception in May 2018, the firm has completed no fewer than 26 deals.
STRATEGIC RATIONALE
The merger of Media Monks with Miyagi, which was founded in Italy by five partners in 2013, will form S4's 'content practice' in Italy.
Miyagi specialises in end-to-end digital experience content strategy, design and production. The business has around 70 employees and its clients include consumer goods firms Campari Group, Danone and Luxottica.
Presenting the firm's third quarter results, S4 Capital founder and chief executive Martin Sorrell identified 19 'whopper clients', each capable of delivering over $20 million of revenues per year, which he hoped to win. With Italy representing Europe’s fourth largest advertising market, the Miyagi deal 'significantly expands' S4's offering to clients.
ATTRACTIVE VALUATION
Today's lack of excitement surrounding the news, and the lukewarm response to the company's strong third quarter results, suggests investors have become used to the positive newsflow.
Yet underlying earnings growth, that is excluding acquisitions, has continued to accelerate from 25% at the start of the year to 40% or more today.
According to Becky Lane, media analyst at investment bank Jefferies, S4's valuation of 12.6x full year 2023 enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) is 'attractive for a digital disruptor benefiting from market changes’.
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