S4 Capital says Q4 trading line

(Sharecast News) - S4 Capital said on Monday that trading in the fourth quarter was in line with the expectations outlined in November and that client caution on marketing spend was expected to persist. As a result, the group now expects a like-for-like net revenue decline of around 4% for the full year 2023, and an operational EBITDA margin of between 10% and 11%.

The company said it improved its operational EBITDA margin performance in the second half thanks to "significant" cost reductions.

S4 also said net debt was set to be towards the lower end of the guided range of £180m to £220m, with around £10m of merger payments delayed to 2024.

Executive chairman Sir Martin Sorrell said: "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. Our client relationships remain strong and we have also managed costs tightly.

"While it is early in the year, we are not expecting 2024 to show macro-economic improvement, and client caution on marketing spend will likely persist, although not at last year's level given interest rates are likely to fall over time.

"Initial indications are for an improvement in performance in the Content practice, reflecting cost reductions, broadly similar performance in Data&Digital Media to last year and a more challenging outlook for Technology Services. In these unpredictable times, we are focused on positioning the company for medium term growth, improving profitability and returning funds to shareowners."

At 0945 GMT, the shares were up 4.4% at 42.13p.

Russ Mould, investment director at AJ Bell, said: "After a series of warnings in 2023, S4 Capital has started 2024 with an in-line trading update and this has proved just the salve for a beaten-up share price. Martin Sorrell started S4 with grand ambitions to rival the empire building he pursued at his former charge WPP, before an acrimonious departure in 2018, but this time with a digital bias which would mean it wasn't stuck with the legacy analogue interests.

"Despite strong early backing from the market it hasn't worked out quite as planned. The backdrop has not helped - a period of considerable uncertainty doing nothing for companies' appetite to allocate funds to advertising.

"S4's performance to date will have merely confirmed the biases of investors who are suspicious of firms which grow rapidly through acquisition. Deals are notoriously difficult to get right and throwing together a collection of businesses is fraught with risk as their cultures may not be in sync.

"Still, given his experience, it is worth listening to Sorrell on the outlook for the wider market. While there is nothing to get too excited about, he is displaying some cautious optimism that a shift in the trajectory on interest rates will translate into higher advertising spend."