Jefferies compares S4 structure more to tech players rather than ad holding groups

S4 Capital is now increasingly correlated with tech platforms such as Google and Facebook as well as consultancies such as Accenture, rather than ad holding companies. This was according to a research note to clients by investment bank Jefferies, which added that S4’s “atypical exposure” is reflected in its more resilient top line in the short-term and organic growth opportunity in the longer-term.

“S4’s investment thesis is clearly resonating in a backdrop of accelerating digital transformation. We think COVID-19 is highlighting the short and long-term opportunity,” the note said. Jefferies added that feedback from CMOs is the step change in digital stick. According to the note, MightyHive and MediaMonks are “at the forefront” of helping to shape CMO strategy. The research note said that S4’s conversations with CMOs include how to reach more consumers through digital marketing and repositioning projects in the short term; ways to accelerate digital transformation to achieve this; and how to shape data strategy to increase budget.

It also said that S4 is “ideally positioned” with its integrated global data, content and programmatic model – the holy trinity – to benefit from a backdrop of accelerated digital transformation. Jefferies predicts continuing robust top-line growth supported by structural shifts away from traditional towards digital advertising, with tech clients even more so. It also expects a shift towards an embedded client marketing model, with S4 positioned across the spectrum out-housing to in-housing.

“We think the below chart highlights increasing investor understanding of the key drivers of growth for S4. We also think it shows S4’s investment story is resonating in a COVID-19 backdrop of accelerating digital transformation,” the research note added.

Earlier this month, S4 posted a like-for-like 19% increase in gross profit to approximately US$75.63 million for the first quarter of 2020 (Q1 2020). It also witnessed a like-for-like revenue increase of 17% to about US$88 million during the period. The growth comes despite the impact of COVID-19, but of course, below the pre pandemic expectations. However, S4 said it is still at a level which gives “a fighting chance” to achieve the group’s three-year plan of doubling its size organically on a like-for-like basis.

Executive chairman Martin Sorrell said the pandemic will only accelerate the digital trends it has seen before at three levels – consumers, media owners and enterprise managers. He added that COVID-19 is effectively and sadly “a burning platform” that has encouraged and driven digital transformation, adding that agility will be a key, if not the key corporate attribute.

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