- Net revenue growth improves in third quarter
- Company confirms full year profit forecast
- Analyst raises price target after update
Digital advertising agency S4 Capital (SFOR) showed a slight acceleration in top-line growth in the third quarter and a ‘significant’ improvement in operating profits putting it on track to meet its full-year target.
The shares climbed as much as 8.5% to 228p at the open but settled back to trade up 4% at 218p by mid-morning.
CONTINUED POSITIVE MOMENTUM
After registering 28% growth in like-for-like net revenues in the six months to June, the firm went one better in the third quarter posting a 29% increase to £250 million.
Including acquisitions, net revenues increased 73% with technology services jumping from £1 million to £33.2 million.
Client conversion continued with ten ‘whopper’ accounts - worth $20 million or more in annual revenues - in sight and average revenue growth of 70% across the firm’s top 50 clients.
Although it didn’t give specific details, the company also said EBITDA (earnings before interest, taxes, depreciation and amortisation) rose ‘significantly’ compared with the first half - when it declined to £30 million - and was on track to meet the full year guidance it gave in July of £120 million.
Chief executive Sir Martin Sorrell commented: ‘Despite the current macro political and economic gloom and slowing tech growth, our top-line momentum has been more than maintained in the third quarter and remains relatively strong into the fourth quarter.
‘Ten “whoppers” are now in sight, half of our long-term objective, also demonstrating the conversion at scale power of our disruptive model. The leading technology platforms are still forecast to grow by up to 10% next year and digital transformation spending is forecast to continue to grow in the range of 20%.’
THE EXPERT VIEW
Analysts at Jefferies raised their price target on S4 Capital to 250p following the trading update describing the firm as ‘a disruptor with structural growth tailwinds’.
As digital and tech advertising spend increases, partly thanks to Covid, the company’s ‘new-age’ model is set to capitalise on the trend towards digital marketing and consulting, believe the analysts.
Moreover, they echo the chief executive’s view that a more challenging economic environment is likely to drive more outsourcing of advertising, offering more growth opportunities.
