S4 Capital PLC (LSE:SFOR)‘s rally tailed off this morning as analysts warned of high risks facing its business despite an overwhelming ‘buy’ consensus among brokers.
The recommendations followed quarterly results yesterday with six brokers outright buyers and three rating it as ‘outperform’.
Citigroup was one of the buyers, but said it was ‘high risk’.
In its trading update this week, S4 Capital reported revenue of £206.8mln for the first quarter of 2022, up 40.6% like-for-like, and 34.5% like-for-like growth in gross profit.
But it faces multiple headwinds of slow economic growth in its key sectors, global media, marketing services, trade budgets and digital marketing transformation, said Citi.
Following high growth in digital media and media spending last year, growth in these areas is expected to slow in 2022 and 2023.
“The weak performance in the shares since last September is primarily attributable to the reset to margins and concerns stemming from the delay to FY results,” Citigroup said in an analyst note.
“There are, however, other ‘hygiene’ factors that weigh on sentiment for S4C, largely relating to uncertainty about contingent liabilities associated with the group’s highly acquisitive nature and its generous LTIP for its founders.”
“In this context, 1Q results were helpful, in our view, not only because they gave comfort on the underlying trends in the business (which remain robust) but also because the company took the opportunity to clear up some of the uncertainty over the degree of overhang from these factors,” the analyst note said.
Citigroup slapped a 640p price target on the business, estimating it will bounce back to the price level from last November, but cautioning it as ‘Buy/High Risk’.
Shares were 281p today.
Source: proactiveinvestors.co.uk
