- Third quarter net revenue down 15.4%
- No share buybacks or dividends until 2024
- Continued client caution in the tech sector
Shares in Martin Sorrell’s S4 Capital (SFOR) fell over 18% to 54p in morning trading as the advertising group issued its third profit warning and cut its full year guidance.
The first profit warning was in July this year the second in September following ‘slower than expected trading over the summer months.’
Disappointment surrounds the advertising group, Russ Mould investment director at AJ Bell said. ‘People initially set great store in Martin Sorrell’s position at S4 Capital – amid hope he could repeat the acquisition-led strategy which turned WPP into a global advertising giant before his acrimonious departure.
‘That hope is looking increasingly forlorn as S4 warns on profit again. The idea of creating a specialist digital advertising agency from scratch and outpacing rivals with legacy assets was an enticing one. But S4 has proved just as vulnerable, if not more so, to a deterioration in the economic outlook. Marketing spend is one of the first items which gets cut in a downturn.’
Year-to-date S4 Capital’s shares have fallen over 71%.
The news of another profit warning came as the advertising group reported a 15.4% fall in net revenue for the third quarter ‘reflecting lower activity in content and data and digital media.’
Advertising group S4 Capital issues second profit warning due to lower client volumes
TOP CLIENTS
Sorrell said despite the slowdown in the third quarter, the company continues to ‘see year to date growth from top clients with like-for-like revenue growth up 2.9% [for the top 20 clients) and up 4.6% [for the top 50 clients].’
Other bright spots for S4 Capital included its progress with artificial intelligence (AI).
Sorrell said: ‘We expect, as usual, fourth quarter profitability to be the strongest quarter of the year - stimulated by the usual seasonal levels of client activity and the AI initiatives.’
The advertising group is hoping for better cash flow in 2024 to pay out dividends and initiate share buybacks when no further merger payments are scheduled.
LEARN MORE ABOUT S4 CAPITAL
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Steven Frazer) own shares in AJ Bell.
