S4 Capital Updates
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Revenge for Sir Martin Sorrell is a dish that can best be served hot. S4 Capital, the only digital agency he has set up to disrupt the advertising business, is definitely going full steam ahead. The organic net income should now grow by 40%, S4 said on Monday. The economic recovery and the accelerated shift to digital support the group’s third upgrade to the highest expectations.
Sorrell will rely on both tendencies to make a march to an industry he helped build, but now thinks it’s outdated. As with its previous venture WPP, its acquisitions boost organic growth. There have been nine transactions so far this year – expect more to come.
S4 still looks small compared to industries like WPP. The net income from the group that Sorrell built was 20 times greater in the first half. S4’s rapidly swelling market value of £ 4bn, which has risen 12 times over the past two years, offers a better idea of the direction of the industry.
The law of large numbers weighs on WPP, which achieved an organic growth of 11 percent in the first half. Sorrell has created a slimmer model in its new store. The single structure removes the mutual rivalry that large advertising and marketing container companies hold.
The former made it possible to retain the largest customers. Digital customers prefer to respond quickly to new trends and are best served by internal collaboration. The approach is supported by financial incentives on S4, linked to the share price rather than individual profit and loss accounts.
Its shares in S4 already reflect any excitement. Since the beginning of 2020, they have more than quadrupled trading at a record value of 60 times this year’s earnings, indicating a solid price-to-earnings-growth ratio of 2.4 times. To get the PEG ratio lower than 1 time reasonably, earnings should amount to more than 30 percent annually over the next three years.
Even if the trends continue, it looks like a record target that requires many more acquisitions. Sorrell’s ambitions will undoubtedly remain a hot topic among his rivals for some time.
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