S4 Capital (LON:SFOR) seems to be on a roll at the moment and looks like a stock to watch. The company posted a 19.4% rise in gross profits last year while also recording a 15% gain in revenue. But does it have more to give?
Profits continue to remain ahead of expectations, and pronouncements from management sound pretty bullish. Boss Sir Martin Sorrell has positioned the business firmly in the centre of the digital advertising space at a time when it was tough for advertisers to reach companies any other way. S4 Capital is also making positive noises about global economic prospects in 2021-22.
S4 Capital stock has been on a tear since March last year, when it could have been got for about 150-160. It had a small correction at the start of this year, but rallied again quickly as the market got back on board. Since then there has been steady appreciation. Looking at the broker deal flow for this last 30 days and it is still well into buying territory.
S4 Capital continues to sign new clients at a remarkable rate
S4 has expanded rapidly having been founded in 2018 and going on to buy up a slew of marketing consultancies and advertising agencies. It continues to go after blue chip client names with the massive budgets to go with them. It seems to be living up to this proposition and has landed names like BMW and Google in the process. Projects are also coming in from the likes of Amazon, Netflix and Procter & Gamble.
S4 Capital is also working on the expansion of its presence in the North American market – for example merging Toronto-based design agency Jam3 with Media Monks (part of S4).
The company seems to have developed a considerable amount of momentum, and it is getting investors excited. Like for like revenue up 15.2%. Consensus from City analysts is for £577m revenues in 2021 and potentially £757m in 2022. There are some concerns about how pricey S4 Capital shares are starting to look – EPS of 12.4p and and a forward looking PE ratio of 42 are causing some to mull whether it is time to exit.
Can Sir Martin Sorrell still work his magic?
S4 Capital is also founder-led. In this case we have Sorrell, who is something of a legend in the international advertising industry, owning 10% of the stock. On the one hand it is great to have someone with his expertise, track record and long term outlook at the helm of the S4 Capital ship, but some investors worry about whether he has staying power given he is already 76.
Looking at the investor sentiment on the stock, and there is still plenty of volume on the buy side. The market likes it and is heavily invested in Sorrell’s scope as a digital rainmaker.
We expect to see the global digital advertising market expanding rapidly over the next five years and we can’t think of many better or more focused proxies for this. Shares closed in London at 580 on Friday.
