Sorrell's S4 Capital ups profit outlook as losses widen

·3 min read
Businessman Sir Martin Sorrell arrives at the Cabinet Office, London, ahead of a meeting of the Government's emergency committee Cobra to discuss coronavirus.
Sir Martin Sorrell: 'The second half of 2021 and the prospects for 2022 look very good primarily driven by the fiscal and monetary stimulus, as well as the years beyond driven by digital transformation.' Photo: PA

Ad guru Sir Martin Sorrell's S4 Capital (SFOR.L) upped its profit outlook for a third time on Monday morning in London, announcing in first-half results that its like-for-like gross profit (net revenue) guidance for 2021 had increased from 35% to 40%.

The report, which runs to 30 June 2021 comes following a volley of mergers and acquisitions by the business, which listed three years ago in London. 

S4 has ridden the tide of a rapid move to digital during the COVID-19 pandemic as demand from global tech platforms grew. 

It said its growth reflected "continued investment in human capital and 'whopper' growth in the first half and preparation for a continued strong second half, signalled by July's like-for-like gross profit (net revenue) growth of over 50%."

Billings hit £547.5m ($755.9m), up over 110% from the previous report. 

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Despite the positive report, operating loss was £16.1m, including adjusting items of £47.5m (primarily acquisition payments, some linked to continued employment and associated expense totalling £23.6m versus a credit of £1.8m in 2020, amortisation and share-based compensation).

Operating profit in 2020 was £1.3m and like-for-like operating loss was £18.1m. As such it saw a basic and diluted loss per share 3.9p versus 0.3p loss in 2020.

Its pretax loss was £19.4m compared with a loss of £1m for the first half of 2020.

Over the last six months the stock price has shot up from 430 pence-per-share to 779.65p — bringing the market cap to around £4.2bn. Stock was down around 6.7% by mid-morning in London. 

S4 Capital's stock price dived after it reported first-half results. Chart: Yahoo Finance UK
S4 Capital's stock price dived after it reported first-half results. Chart: Yahoo Finance UK

"With a strong and liquid balance sheet and significant combination firepower we are in a great financial place to expand through further combinations, which will add to our data, content, digital media and, potentially in the future, technology services capabilities," said Sorrell. 

Last week the business announced its subsidiary Media.Monks had bought out LA-based agency Cashmere.

The combination brings a roster of clients such as Instagram, Netflix (NFLX), Disney (DIS), Google (GOOGL), Adidas (ADDYY) and BMW.

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Earlier this year S4 bought Decoded Advertising, a creative agency, and Metric Theory, a data-driven digital agency. It also bought Tomorrow, a 50-person Shanghai-based creative agency.

S4 has now expanded into 33 countries around the world, employing around 6,000 people.

"The second half of 2021 and the prospects for 2022 look very good primarily driven by the fiscal and monetary stimulus, as well as the years beyond driven by digital transformation," said Sorrell. 

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