S4 Capital shares plummet as ad group downgrades outlook on recession fears
- Ad firm suffers ‘slower than expected’ summer as companies cut spending
S4 Capital shares plunged nearly 25 per cent on Monday after the advertising firm downgraded its outlook for the rest of the year.
Sir Martin Sorrell’s digital advertising firm told investors it now expects like-for-like net revenue to fall year-on-year after a ‘slower than expected’ summer.
S4 also expects its core earnings margin to be between 12 and 13.5 per cent, down from July’s guidance of between 14.5 and 15.5 per cent.
S4 Capital’s Sir Martin Sorrell said performance in the first half of the year was ‘mixed’
It marks the second time S4 Capital has downgraded its outlook in two months, after lowering its revenue guidance in July due to economic uncertainty.
S4 Capital shares are trading at an all-time low of 71.75p this morning, after plummeting 24.87 per cent in early trading. Its shares are now down 69 per cent since their year-to-date peak in February.
Sorrell said: ‘We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.
‘We remain confident our talent, business model, strategy and scaled client relationships position us well for above average growth in the longer term, with a new emphasis on deploying free cash flow to dividends and share buybacks.’
The advertising industry is grappling with falling revenues as clients cut their marketing budgets.
Technology firms in particular have been slashing costs and jobs, and S4 has bemoaned ‘longer sales cycles, particularly with technology and newer regional and local clients’.
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 £74.2million.
But its data and digital media division failed to keep up with inflation, reporting a 2.4 per cent rise in revenue to £106.6million.
Its content division reported a 2.5 per cent loss on a like-for-like basis, which it said reflected inflationary pressures.
The agency reported a 30.2 per cent drop in its operational core earnings to £36.5million, falling short of analysts’ expectations.
Russ Mould, investment director at AJ Bell said: ‘Advertising agencies are at the mercy of the economy. In bright times, companies are prepared to spend big to promote their products and services. In harder or uncertain times, those budgets are pared back, which means companies like S4 Capital will find it harder to grow fast.
‘This is not a new trend for S4 as it has been moaning about the state of the market for some time.
‘However, the latest downgrade to earnings expectations has caused yet another sell-off in the share price, down a further 20 per cent.’