S4 Capital shares plummet as ad group downgrades outlook on recession fears

Shares of S4 Capital plunged nearly 25 percent on Monday after the advertising company lowered its outlook for the rest of the year.

Sir Martin Sorrell’s digital advertising firm told investors it now expects like-for-like net income to fall year-on-year after a “slower than expected” summer.

S4 also expects its underlying profit margin to be between 12 and 13.5 percent, down from July guidance of between 14.5 and 15.5 percent.

It is the second time S4 ​​Capital has lowered its outlook in two months, after lowering its revenue forecasts in July due to economic uncertainty.

S4 Equity shares are trading at a record low of 71.75p this morning, after falling 24.87 per cent in early trading. Its shares are now down 69 percent from their year-to-date high in February.

Sorrell said: “We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and subsequent fears of recession, resulting in clients’ caution in committing and extended sales cycles, particularly for larger projects. .

“We remain confident that our talent, business model, strategy and expanded client relationships position us well for above-average growth over the long term, with a new emphasis on deploying free cash flow for dividends and share buybacks “.

The advertising industry is grappling with falling revenue as clients reduce their marketing budgets.

Technology companies in particular have been cutting costs and jobs, and S4 has lamented “longer sales cycles, particularly with technology and new regional and local customers.”

S4’s technology division performed well in the first half of the year, reporting a 54.3 per cent rise, on a like-for-like basis, in revenue to £74.2 million.

But its data and digital media division failed to keep up with inflation, reporting a 2.4 per cent rise in revenue to £106.6 million.

Its content division reported a 2.5 percent loss on a like-for-like basis, which it said reflected inflationary pressures.

The agency reported a 30.2 per cent drop in core operating profit to £36.5 million, missing analyst expectations.

Russ Mould, chief investment officer at AJ Bell, said: “Advertising agencies are at the mercy of the economy. In prosperous times, companies are willing to spend a lot to promote their products and services. In more difficult or uncertain times, Those budgets are shrinking, meaning companies like S4 Capital will find it harder to grow quickly.

‘This is not a new trend for the S4, as it has been complaining about the state of the market for some time.

“However, the latest downgrade in earnings expectations has led to another sell-off in the share price, with a further 20 per cent drop.”