S4 Capital raises targets on advertising rebound
Media company founded by former WPP chief Martin Sorrell acquires Brazilian group
Sir Martin Sorrell raised profit targets at S4 Capital after a strong first quarter for the digital advertising company, which he said outpaced bigger groups such as WPP because it was unencumbered with “bad” businesses.
Account wins with Mondelez and BMW helped boost like-for-like revenues by 35 per cent in the first three months of the year, Sorrell said, leaving him “extremely optimistic” about the economic rebound in the coming year.
Launched a few weeks after Sorrell’s acrimonious departure in 2018 from WPP, the advertising group he led for 33 years, S4 has grown rapidly to equal almost a quarter of the bigger group’s market value.
Although it still generates a fraction of the revenues of WPP, S4 on Tuesday raised its target for organic profit and revenue growth for the year from 25 per cent to 30 per cent. S4 will raise bonds and aggressively deploy what it estimates to be £500m of “transaction firepower”.
“The pipeline for deals, as it is with [new] clients, is strong, probably as strong as it’s ever been,” he told the Financial Times. Sorrell on Tuesday also announced the acquisition of the Brazilian agency Raccoon, which specialises in digital search and data analytics.
Analysts at Morgan Stanley described it as a “very positive” trading statement, with Sorrell “noticeably more upbeat” about the year ahead.
Sorrell’s relations with WPP’s leadership remain rancorous. Last week WPP cancelled a planned share award to Sorrell after finding he leaked sensitive client information to the media while he was running the company.
Without going into details of the case, Sorrell decried the decision as “extraordinary”, “outrageous” and “driven by personal animus”. Asked whether he would be taking legal action to contest WPP’s allegations, Sorrell said he had left the matter with his lawyers.
After a battering through the pandemic, all the big advertising holding groups comfortably beat market expectations for the first three months of this year, with WPP leading the pack with organic growth of 3.1 per cent.
Sorrell dismissed the significance of the return to growth, arguing it merely reflected the low bar set by the dire performance during the early parts of the pandemic.
“Three per cent? When you were down last year? Come on,” Sorrell said. “You know what the problem is. It is like the banks after the great financial crisis,” he added, referring to the traditional advertising work still done by big holding groups. “There is a good bank and a bad. And their good banks are very small in relation to their bad banks, that’s the problem.”
Shares in S4 rose about 2.5 per cent in morning trading, giving it a market capitalisation of about £3.1bn.
S4’s share price was hit earlier this year by privacy-related changes introduced by Apple and Google, which were transforming the use of tracking in digital advertising. Sorrell said the uncertainty created by the changes would ultimately benefit S4 as clients sought guidance on how to navigate the market.