Investors in digital advertising firm S4 Capital (SFOR) breathed a sigh of relief with the publication of the firm’s unaudited full year results after several weeks of delays.
Shares jumped 6% to 345p, adding to yesterday’s 12% bounce, although they are still well below the 480p level at which they were trading in March before the firm postponed its earnings release.
DOUBLE WHOPPER
Gross billings to clients including pass-through costs for the year to December almost doubled to £1.3 billion, as did gross revenues which reached £687 million, towards the very top of analysts’ estimates.
Net revenues of £560 million were in line with the consensus, while operational EBITDA (earnings before interest, taxes, depreciation and amortization) of £101 million was at the low end of market forecasts.
The firm put the lower EBITDA figure down to higher investment in what it called ‘major new “whopper” clients’ along with new areas of organic growth and management infrastructure.
Chief executive Martin Sorrell was in typically ebullient mood: ‘In our third full financial year we almost doubled in size, approximately half through organic growth and approximately half through combinations and generated over $900 million of revenue in 33 countries.
‘We continued to develop conversion at scale with six well established 'whoppers' and a further nineteen clients identified as 'whoppertunities' and with approximately half of our revenues from technology clients.’
Operating losses were £42 million against a profit of £8 million the previous year due to £137 million of adjusting items for acquisitions, amortization and share-based payments, highlighting the complexity of the task facing the firm’s auditors.
BACK ON TRACK
According to Sorrell, the current financial year has started ‘more than in line’ with his three-year plan to double net revenues by 2024.
The firm’s primary objective is ‘to continue to develop our six existing 'whoppers' and develop and secure five more this year, one having already been almost secured’, according to the chief executive.
Additionally, work is needed to integrate the group’s three practices and three geographies more effectively into a stronger unitary client offering, and to continue to broaden and deepen its digital client offering through more combinations.
Finally, there is a hint of a mea culpa and a promise ‘to try to ensure that a results delay does not happen again’ by investing in stronger financial controls.
Analysts at Jefferies point out that consensus forecasts for this year are unlikely to change, and with the shares having fallen sharply year to date they believe S4 looks ‘highly attractive for a digital disruptor with double-digit growth and multiple structural tailwinds’.
