22nd Jan 2024 13:19
(Alliance News) - S4 Capital PLC did not issue another guidance cut to round off a tricky financial year, though the fourth-quarter hardly represented a return to form for the advertising agency either.
This year is set to be a tricky one also, as the London-based firm predicts another period of muted client spend.
"After four years of very strong growth, 2023 was a difficult year impacted by volatile macro conditions and, consequently, cautious spending from clients, particularly those in the technology sector and from smaller project-based assignments," Executive Chair Martin Sorrell said.
After a fourth-quarter that went in line with its recently-downgraded guidance, the London-based company expects to report a like-for-like net revenue decline of roughly 4% for 2023. Like-for-like net revenue had surged 26% in 2022.
Its operational earnings before interest, tax, depreciation and amortisation margin is expected to land in the 10% to 11% range, weakening from 13.9% in 2022. It margin outlook had been cut from a 12% to 13.5% range in November.
The company had also cut guidance in July, when it downgraded its like-for-like net revenue growth outlook to 2% and 4%, before predicting a "likely" decline for 2023 in September. Its operational Ebitda margin outlook had once stood at the 15% to 16% range, before being cut to 14.5% to 15.5% in July, and then to the 12%-13.5% forecast in September.
S4 Capital added: "The company improved operational Ebitda margin performance in the second half of the year as a result of significant cost reductions. Net debt is expected to be towards the lower end of the guided range of GBP180-220 million, with circa GBP10 million of merger payments delayed to 2024."
Executive Chair Sorrell said he is not expecting to see a "macro-economic improvement" this year.
"Client caution on marketing spend will likely persist, although not at last year's level given interest rates are likely to fall over time," he added.
"In these unpredictable times, we are focused on positioning the company for medium term growth, improving profitability and returning funds to shareowners."
S4 Capital announces annual results on March 27.
Analysts at Peel Hunt said it was "comforting" to see that S4's trading did not worsen as the year drew to a close.
"Expectations are low for 2024, and our forecasts assume close to no growth for the year. Acceleration in client spend combined with S4's cost control could materially lift profits; however, we have yet to see signs of a turn, especially in tech client spend," Peel analysts Jessica Pok and Melanie Yang added.
The broker left its recommendation for the stock at 'hold' as a result. It has a 55.0 pence price target.
Shares traded 4.2% lower at 38.74p each in London on Monday afternoon. The stock plunged 83% in the last 12 months.
By Eric Cunha, Alliance News news editor
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