S4 Capital PLC (LSE:SFOR) shares fell over 7% after the advertising firm reported a widened full-year loss despite strong revenue growth as hiring costs impacted profitability in a challenging first half of the year.
The London-based advertising agency run by Sir Martin Sorrell also issued guidance for the coming financial year below City expectations but despite this brokers feel the stock represents good value.
For the 12 months to December 31, S4 Capital reported revenue of £1.07bn, up 56% from £686.6mln a year prior while the pre-tax loss widened to £159.7mln from £55.7mln.
Jefferies noted that at an EBITDA 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 £156mln.
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.
Jefferies reiterated a buy rating. “The current S4 share price is effectively pricing in a further >25% decline in EBITDA, in our view,” it said.
Over at Peel Hunt analysts have trimmed gross profit and EBITDA forecasts for the 2023 financial year by 3% and EPS by 7% due to higher than expected net interest.
However, despite the lower guidance S4's growth will still be ahead of the 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.” It has 250p share price target as does Jefferies offering upside of around 56% from today’s price of around 161p.