Shares in S4Capital (LON:SFOR) soared 20% after the ‘digital-first’ media agency raised its FY26 profit margin guidance. Thanks to lower costs and a lower debt pile, core operating profit is expected to increase more than expected.
FY profit guidance raised
In a trading update, S4 said H1 reported revenue dipped 6.2% or 4.7% on a LFL basis to £308 million. However, operational EBITDA jumped 83% or 127% on a LFL basis to a record £38 million.
The firm’s operating margin of 12.3% was double the previous year and more than double on a LFL basis. Net debt of £66.3 million was down almost £80 million against the same period last year.
For the FY, the company now expects LFL revenue to be down mid-single digits, more or less in line with H1. Operational EBITDA meanwhile is seen in line with the consensus of £85 million, meaning a 1.4% increase in the margin.
Net debt will between a new, lower target range of £50 million to £80 million. Finally, basic adjusted earnings per share will be above the current consensus, which is 5.7p according to Stockopedia.
After parting ways with WPP (LON:WPP), which he grew into a global media giant, chairman Sir Martin Sorrell had a point to prove. Building S4 hasn’t been easy, with the pandemic, the war in Ukraine and now hostilities in the Middle East impacting client confidence.
On top of that, ad spending globally has contracted and budgets are now being diverted from marketing to investing in AI. To combat these headwinds, Sorrell has put S4 on a diet, cutting debt and overheads to protect margins.
Although today’s update is impressive, the ad business and stocks like S4 are best suited to those with an elevated risk appetite. Even with today’s 20% jump, the share price is still more than 90% below its 2021 high. Depending on your view, that’s either an opportunity or it’s an absolute mountain to climb.
