- First quarter results ahead of expectations
- Reiterated profit growth target of 25%
- Demand for digital advertising remains robust
Digital advertising company S4 Capital (SFOR) announced a strong set of first quarter results ahead of guidance sending the shares 3.6% higher to 295.7p.
Looking forward the company has reiterated its profit growth target of 25% despite the increasingly uncertain outlook for global growth.
S4 Capital reported revenue was up 70.1% to £206.8 million and gross profit on net revenue was up 64.6% to £171.1 million. Like-for-like and pro-forma revenues and gross profit on net revenues were up 40.6% and 34.5% respectively.
Pro-forma numbers include expected contributions from acquired businesses for the period.
The balance sheet remains strong with net debt of £48.0 million at the end of the first quarter. Critically performance continues in line with the group’s three-year plan of doubling organically between 2022-24.
STRUCTURAL GROWTH IN DIGITAL ADVERTISING DESPITE MACRO UNCERTAINTY
As early as 2017, when chief executive Sorrell was at WPP, he recognised that digital disruption was forcing companies to change their business models and reach customers in different ways.
This observation formed the central tenet in the philosophy behind the creation of S4 Capital.
In 2018, when S4 Capital was founded, digital advertising accounted for 45% of total global advertising expenditure. Sorrell has publicly stated that this share should grow to approximately 55% by 2022.
Shares in S4 Capital have been savagely de-rated, falling by 48% over the last six months. This in part reflects the general rotation away from growth into more value orientated names.
Moreover with the increasingly uncertain macro-economic environment investors have been concerned that companies like S4 Capital may experience a sharp slowdown in their growth rates.
However the demand for digital advertising and marketing transformation continues to be robust, and the group anticipates it will grow at 10%-to-15% per year.
This is despite, rising inflation, a cost of living crisis and a global economy that appears to be slowing.
Significantly S4 Capital has reaffirmed its target of 25% like-for-like revenue and gross profit growth.
‘We remain optimistic about our prospects for this year, particularly as consumer and corporate balance sheets remain strong, cushioned by the Covid stimulus,’ said Sorrell.
