- Shares surge nearly 10% as full-year guidance confirmed
- Margin weakness in both content and data/digital divisions still a concern
- Year-to-date shares are still down 47%
Shares in Martin Sorrell’s advertising agency S4 Capital (SFOR) jumped nearly 10% after investors were pleased that half-year results didn't contain any further bad news, given the company issued a nasty profit warning just two months ago.
Management confirmed both the gross profit growth and recently downgraded earnings before interest, tax, depreciation and amortisation (EBITDA) target for full year 2022.
Even after the latest rally, the shares still trade 45% lower than at the start of the year.
Gross profit fell by 28% to £375.3 million on a like-for-like basis, EBITDA was 41% lower on a like-for-like basis to £30.1 million.
Adjusted earnings per share declined by 38% to 2.1p and net debt increased to £136 million compared to a positive £7 million cash position during the first half of 2021.
GUIDANCE MAINTAINED BUT MARGIN CONCERNS REMAIN
In today’s interim results management confirmed: ‘Full year like-for-like gross profit/net revenue growth target remains unchanged at 25%. For the full year expected operational EBITDA target remains unchanged at approximately £120 million.’
However, the EBITDA margin has declined from 14.5% during the first half of 2021 to 8%. This is a result of personnel costs increasing at a faster rate than sales. From September 2020 to September 2021 headcount increased from 2,644 to 5,751.
Following a profit warning in late July the group imposed a hiring freeze and introduced new cost controls to ‘better balance’ the growth in revenue against costs.
Today’s results reveal that both the content and the data and digital media divisions have witnessed sharp declines in their respective EBITDA margins.
The former has recorded a 6% margin compared to the 11% achieved last year and the latter has witnessed margins falling from 28% to 17%.
Commenting on today’s interim results Peel Hunt analyst Jessica Pok said: ‘The confirmation of both like-for-like gross profit growth and EBITDA target gives comfort that client spend continues to be robust and costs have not spiralled further.’
