30th Mar 2023 17:12
(Alliance News) - S4 Capital PLC represents good value according to analysts, despite forecasts being cut after the company reported a widened annual loss as hiring costs impacted profit in a challenging first half of the year.
Shares fell 6.3% to 162.50 pence on Thursday, as the London-based advertising agency run by Martin Sorrell also issued guidance for the coming financial year below City expectations.
For the 12 months to December 31, S4 Capital reported revenue of GBP1.07 billion, up 56% from GBP686.6 million a year prior, while the pretax loss widened to GBP159.7 million from GBP55.7 million.
Jefferies noted that at an earnings before interest, tax, depreciation, and amortisation level, results were slightly ahead of the guidance reiterated in late-January. It didn't expect a material change to consensus Ebitda expectations for the current year of GBP156 million.
However, it did point out that new medium-term organic revenue guidance targets of 8%-12% growth in the 2023 financial year were below its 15% expectation. Together with higher interest charges this implies a 5% cut to 2023 EPS estimates, the broker said.
Nonetheless, Jefferies reiterated a 'buy' rating. "The current S4 share price is effectively pricing in a further [more than 25%] decline in Ebitda, in our view," it said.
At Peel Hunt, analysts trimmed gross profit and Ebitda forecasts for the 2023 financial year by 3% and EPS forecasts by 7% due to higher than expected net interest charges.
Despite the lower guidance, S4's growth will still be ahead of global rivals, the broker predicted.
Peel Hunt also has a buy rating on S4. It feels management is making good progress with cost control and margin improvement, and that the uncertainty impacting growth should be transitionary.
"We believe S4 has the capabilities (Digital, Data, AI) to continue to attract clients," analysts wrote.
Peel Hunt has a 250 pence price target for S4, as does Jefferies.
By Jeremy Cutler, Alliance News reporter
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