S4 Capital PLC

S4 Capital PLC (LON: SFOR) is an FTSE main market listed digital advertising and marketing services entity.

Rationale for Valuation – Speculative Buy at GBX 326.00

• Strong Guidance: For FY22, SFOR is estimating 25% like-for-like gross profit growth with steady improvement in EBITDA margins.
• Solid Momentum: For January and February 2022, net revenue/gross profit performed ahead of the targeted 25% like-for-like growth.
• Merger Update: The combination of Maverick Digital and Media.Monks will significantly expand the Company’s Data&digital media and Technology services practices. Previously, Miyagi also merged with Media.Monks, to strengthen content capabilities.
• Technical Indicators: SFOR moved down significantly after the prices broke the crucial support level of GBX 418 by downside. However, prices are getting positive monthly closing in April month which provides a price reversal indication. Also, the prices have moved up yesterday with good volume support and the prices also trade above its 21-period SMA on a daily chart that indicates the prices might move up in the coming trading sessions. RSI (14-period) is reversing from the oversold region at ~47 on a daily chart that indicates the stock is picking up the momentum.

Key Risks

• Loss-making Entity: The Company has been consistently reporting negative bottom-line profitability.
• Tightening of Monetary Policy: The Federal Reserve announced an 0.5% increase in interest rates on 04 May 2022. Also, the Bank of England raised the interest to 1% and also gave a warning of 10% inflation

Financial Highlights (for the year ended 31 December 2021, as of 6 May 2022)

 (Source: Company Filings)

• Top-line Growth: During FY21, revenue jumped by 100.4% YoY on a reported basis.
• Strong Activity: The current activity pipeline is running at a stronger level than last year.

Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Relx PLC, Informa PLC, and Ascential PLC.

*All selected peers are LSE-listed Companies from the Media sector.

Conclusion

Based on the strategic progress, positive technical indication, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on S4 Capital PLC at the closing market price of GBX 326.00 (as of 5 May 2022) with lower double-digit upside potential based on 21.55x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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