A few weeks ago, I took a look at the investment case for shares in digital marketing firm S4 Capital (LSE: SFOR). In that article, I said that there was a lot to like about the company from an investment perspective.
However, I was concerned that its full-year 2021 results had been delayed (twice) and I wanted to wait until they were published before deciding whether the stock was worth buying for my portfolio.
Fast forward to today, and the 2021 results have been published. So let’s take a look.
Unpacking S4 Capital’s 2021 results
Overall, S4’s full-year results were pretty good, in my view. For the year, billings amounted to £1.3bn, up 99% on a reported basis and 67% ahead on a like-for-like basis. Meanwhile, revenue totalled £686.6m, up 100% on a reported basis and lifted 52% like-for-like.
Gross profit was £560m, up 90% reported and 44% ahead like-for-like, while adjusted basic earnings per share totalled 13.0p, up 65% on the 7.9p posted a year earlier.
Encouragingly, S4 noted that during the period, it expanded its relationships with companies such as Google, Amazon, and Netflix. It also added new clients such as Allianz, Miele, and Dropbox.
And looking ahead, it said it plans to capture 20 clients each generating revenues of over $20m per annum between 2022 and 2024.
It added that 2022 had started more than in line with its latest three-year plan to double gross profit organically in three years. Like-for-like gross profit growth in January and February came in above its target of 25%.
Why were the results delayed?
As for why the full-year results were delayed, it seems it was down to control weaknesses and a lack of detailed documentation in its content division in relation to the accounting for uncompleted projects. Executive chairman Sir Martin Sorrell described the delay as “unacceptable and embarrassing.”
He noted that “significant changes” in its financial control, risk and governance structure were being implemented across the group in order to ensure that delays in producing figures do not occur again.
Should I buy S4 Capital shares now?
So is the stock worth buying now that results have been published? I think it is. The results show that S4 is still growing at a phenomenal rate. And there was nothing too sinister in the results from an audit perspective.
Meanwhile, after a huge share price fall recently, the stock now looks very cheap. With analysts expecting earnings per share of 17.4p for 2022, the forward-looking P/E ratio here is just 18.4. That seems low, given the growth rate.
Having said that, there are risks to consider. One is the global economy. S4 noted in its results that digital marketing expenditure is closely correlated to GDP growth, just as traditional media spending used to be in the last century. Right now, GDP forecasts are being cut. Another is the possibility of more control weakness/accounting issues.
Given these risks, I would keep my exposure to the stock quite small.
