S4 Capital plots further expansion despite Covid-19 profit hit
Advertising firm S4 Capital today said it was plotting further aggressive expansion despite taking a hit to its first-half profit due to the coronavirus outbreak.
The figures
S4 Capital’s revenue increased 6.9 per cent on a like-for-like basis to £141.3m in the six months to the end of June.
Adjusted pre-tax profit was £13.9m, down 13.5 per cent on a like-for-like basis.
Adjusted basic net earnings were 2.3p per share, compared to 0.9p per share last year.
Net cash was £7.2m at the end of the period.
Why it’s interesting
S4 Capital, which was founded by ad mogul Sir Martin Sorrell two years ago, was bullish in its outlook this morning.
The digital-focused advertising firm has proved resilient in the face of the pandemic, increasing its billings almost 13 per cent to more than £260m, while revenue also rose just under seven per cent.
However, S4 reported a double-digit fall in pre-tax profit over the first-half as the pandemic took its toll.
Despite this, the fledgling firm said it had an “even stronger fighting chance” of hitting its target of doubling organically over the three years to 2022.
Sorrell told Morning Wire the company had hit its “nadir” in the second half of March and April, but was well placed for the remainder of the year and 2021.
Shares in S4 Capital were trading almost three per cent higher this afternoon.
S4 has grown rapidly since its inception through a string of acquisitions and now has a market capitalisation of roughly $2.5bn (£1.9bn).
Its client roster is largely made up of tech firms, with major campaigns running in the first half for brands including Bumble, Verizon, Shopify and Twitch.
S4 also has a number of fast-moving consumer goods and retail clients, though these have been harder hit by the Covid-19 outbreak.
In a statement today S4 said it had high hopes of adding two more “whoppers” — companies representing revenue of more than $20m per year — to its roster of clients.
S4 is set to announce one of the new major tech client wins shortly, while Sorrell said the firm is hiring an additional 300 people to work on the new account.
The company set a new target of reaching 20 clients with over $20m of annual revenue.
The ad group has continued its aggressive expansion strategy this year, making five acquisitions totalling roughly £113m.
Most recently the company snapped up data analytics company Brightblue Consulting, which will merge with its Mightyhive data division.
S4 said its merger pipeline was “extremely strong” in both content and data.
Speaking to Morning Wire, Sorrell said his company was well-placed to weather the Covid-19 storm as a digital business.
He added that many companies were keen to “take back control of their marketing” in the face of large tech giants such as Google and Facebook.
“It’s very similar to the British people wanting to take back control of the EU,” he added.
Analysts at Jefferies said S4 had delivered a “robust” set of results that supported growth forecasts.
“A net cash balance sheet, excluding placing proceeds, provides ammunition to capitalise on a wider step change to digital,” they said.
What S4 Capital said
“These results confirm that S4 Capital is currently in a growth sweetspot and that its digital only, faster, better, cheaper, unitary, ‘holy trinity’ model, which combines first party data with digital content, data and digital media, is migrating from brand awareness and trial to conversion at scale,” said executive chairman Sir Martin Sorrell.
“After less than two years as a listed company and with a market capitalisation of around $2.bn, which is well in to the top 200 FTSE companies, we are now in a position to build stronger value-adding relationships with tech, healthcare, financial and FMCG clients amongst others and with a strong and liquid balance sheet in a great financial place to expand through further combinations, which will add to our data, content, digital media and technological capabilities.”