M&C Saatchi Plc

M&C Saatchi Plc (LON: SAA) is a UK based Media Company providing advertising and marketing services. The Company has divided its business into geographic segments, which include the UK, Europe, Asia and Australasia, Middle East and Africa and Americas.

Investment Highlights - M&C Saatchi Plc – Expensive at GBX 177.50

• Despite the resilient business performance in Q4 FY2020, the Company expects trading environment to remain uncertain in the financial year 2021 due to covid-19 pandemic.
• As per valuation metrics, the Price/Earnings multiple of the M&C Saatchi Plc is currently higher as compared to the corresponding multiple of the Media & Publishing industry, reflecting overstretched valuations.
• The Company has reported a current ratio of 0.94x in H1 FY2020, which is lower than the industry median of 1.16x, reflecting that it has insufficient liquidity to meet short-term obligations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is supporting downward movement (around 81 level), which means the stock price could decline in the short term.

Key Risks

• The media sector is exposed to global political and economic events and trends, leading to a risk to business operations from external factors.
• The media market in which the Company operate in very dynamic and is rapidly evolving and become more competitive.

Recent News

On 3 March 2021, M&C Saatchi announced the selection of Vinodka (Vin) Murria OBE as Director non-executive and Deputy Chair effective immediately.

Trading Update for Q4 and FY2020 (released on 28 January 2021)

• Driven by the breadth of customer base, the trading performance in the fourth quarter of FY2020 stood ahead of expectations.
• The cash balance in the end of FY2020 stood significantly ahead of expectations. The net cash as on 31 December 2020 stood at £33 million.
• The results for the financial year 2020 are expected to be ahead of the expectations set at the time of H1 FY2020 results.
• The Company expects uncertainties related to the covid-19 pandemic will remain in FY2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has resilient performance in the fourth quarter of the financial year 2020 and expects performance to be ahead of market expectations in FY2020. SAA has a strong and diverse client base and continue to win new business. Despite the improved performance, the Company expects uncertainties related to covid-19 pandemic to remain in the financial year 2021. Moreover, the Company’s stock is trading near a 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 25.05 and GBX 182.00, respectively.

Based on the factors as highlighted above, we believe the stock of M&C Saatchi Plc is “Expensive” at the current price of GBX 177.50 (as on 15 March 2021, before the market close at 9:15 AM GMT), with support from few catalysts needs to be evaluated at a later stage such as benefits of operational progress made and closure of loss-making business. 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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