- Lowers full year revenue and profit guidance
- More cautious spending by technology clients
- Warning follows recent trend seen across the sector
Challenging macro-economic conditions and more caution from its technology clients has prompted advertising group S4 Capital (SFOR) to issue a profit warning after lowering full year sales and margin guidance.
The disappointing news sent shares in S4 Capital 18% lower to 112.5p and took losses for the year to 40%.
Headed by industry veteran Martin Sorrell, S4 Capital said net revenue for the second quarter through June was below budget and warned it is seeing lengthening sales cycles, particularly for larger ‘transformation’ technology projects.
Despite the profit warning, S4 Capital remains ‘confident’ of delivering ‘industry leading growth’ in the medium term. If investors needed further assurance, the company said the initial client traction it is seeing with its Artificial Intelligence initiatives ‘further reinforces our confidence’.
WHAT IS THE FINANCIAL IMPACT
Lower than budgeted revenue has had an impact on operational EBITDA (earnings before interest, tax, depreciation, and amortisation) and the company now expects full year margin to fall to 14.5% to 15.5%, as opposed to 15% to 16% previously.
Net revenue growth is now expected to be in the lower range of between 2% and 4% compared with 6% to 19% previously. As in prior years due to seasonality, there is expected to be a ‘significant’ second half weighting.
In response, the company continues to maintain a disciplined approach to cost management including headcount and discretionary spending.
Year-end net debt is anticipated to increase to between £180 million and £220 million from approximately £133 million at 30 June due to ‘expected cash consideration on prior year combinations’.
SECTOR WEAKNESS SPREADS
Numis noted the weakness in client spending follows the general trend seen among S4 Capital’s larger peers.
On 21 July, Interpublic (IPG:NYSE) saw its shares drop 13% after lowering full year revenue guidance while on 19 July, Omnicom (OMC:NYSE) shares fell 10% after the company missed Wall Street estimates.
Numis has lowered its 2023 EPS (earnings per share) estimate by 18% to around 10p, which also allows for some foreign exchange pressure, and downgraded its price target from 200p to 160p.
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