The UK-based S4 Capital PLC’s (GB:SFOR) stock declined on Monday after the company issued a weak annual revenue and profit outlook in its interim results for FY23. The company attributed the dismal guidance to broader-level economic challenges, which caused its clients to exercise greater caution in their spending. Additionally, new customers are apprehensive, and China’s slow economic recovery is further complicating the situation.
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This is the company’s second profit warning in the last three months, leading to a 36% drop in the share price to its lowest point yet. YTD, the S4 Capital share price has experienced a decline of 62%.
S4 Capital is a services company specializing in digital advertising and marketing, founded and led by industry veteran Sir Martin Sorrell.
Interim Results 2023: More Challenges Ahead
In its earnings report for the first half of 2023, the company’s net revenue increased by 18.7% to £445.5 million compared to £375.3 million reported in H1 2022. The like-for-like comparison reflected a growth of just 5.1% in net revenues. The company witnessed problems in acquiring business from its technology and regional clients amid the reduced advertising budgets in the sector. Among its segments, the Content division was the weakest and reported a like-for-like decline of 2.5% in its net revenues. Operational EBITDA was 21.3% higher on a reported basis but down by 30.2% on a like-for-like basis.
Looking at the positives, the company’s revenues from its top 20 clients experienced 8.9% growth on a like-for-like basis, with the average size rising from £14.3 million to £15.5 million. This reflects the company’s strategy of developing strong relationships with its clients.
Regarding the outlook, the company cautioned that it anticipates a challenging period ahead, which is expected to negatively impact its revenues and profits. It is now projected that like-for-like net revenue will decline compared to the previous year, and the targeted operational EBITDA margins are expected in the range of 12% to 13.5%.
The company also foresees that the full-year results could benefit from Q4 numbers, aligning with its seasonal patterns and expected business from clients.
What is the Target Price for S4 Capital?
According to TipRanks, SFOR stock has a Strong Buy rating based on four Buy recommendations from analysts. The S4 Capital share price target is 236.3p, which represents a huge 235% upside from the current level.
Analyst James Wheatcroft from Jefferies commented on the recent numbers and said that back-to-back profit warnings could hurt investors’ sentiments and hit an “already fragile market confidence” in the company.
It is important to note here that these ratings were last updated two months ago and may not accurately reflect the current circumstances.
