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Looking at the individual trades over past two days its clear that there is a large institutional seller in the market - there are a large number of 10k, 15k, 20k, 25k and even a 55k sell trade - if this is an existing holder then we should see a RNS over next day or two - if it is a new short seller they need them to accumulate over 0.50% to make their position public (which should be soon at this rate). My initial worry from yesterday was that some negative trading data had leaked from the company but after two days of radio silence from the company I've dismissed this. I'm not overly concerned if its an existing holder selling, in fact it might represent a good buying opportunity once the selling stops. Either way we should find out in very near future. GLA
Nige, good spot on the debt the difference is my numbers included the lease obligations which I agree shouldn't have been added. But assuming your numbers are about right it even more emphasises the positive cashflow generated last year.
Taking NigeCo figure for M&A (£92m) and given that the closing net debt for 2022 was £157.5m and expected net debt for 2023 near the bottom of the £180-220m range say £185m that implies the Group generated circa £64.5m of other positive cashflows. If the numbers above are vaguely correct the business remains massively undervalued.
After a disastrous 12 months and numerous profit downgrades , today, seems to me, to mark the long awaited turning point for S4. The fact that there was no further downgrade in outlook and cash is ahead of expectations surely underline this. With no scheduled updates for a couple of months there is little for the short sellers to feed on so you would expect them to move on to other victims. Having said that, we have a long way to go and its easy to forget that's recently as last month we were trading above 55p so the bunting is not out yet but hopefully the days of significant falls are behind us.
Good spot on the employee numbers - in the Nov 9 TU they claimed to have 8200 employees. Assuming average costs of £50k per employee the headcount reduction would save c. £25m p.a. Given the operational gearing you’d expect most of this saving to credit the bottom line. On the negative side the redundancy costs will hit cash and exceptional items in P&L - maybe £10-12m. The positive read on this is that it might mean they hit the full year numbers and it also shows some decisiveness on behalf of the senior team.
Maybe clutching at straws but given that we now have a firm date for the TU - if there was a material warning in the offing they’d have had to announce it as soon as they were aware of it and not wait until next week - so I’m assuming they will be within 10% of the last guidance. The key for me will be how they see 2024 developing and given his Davos interview it won’t be overly optimistic. How much of this priced in we will see on Monday. Gla
Tend to agree about the profit warning - the shame is that the senior team at S4 don't seem to be ahead of the numbers - IMO better to have had one big profit warning and manage expectations upwards rather that death by a thousand cuts - my biggest worry is that profits will be insufficient and there is a breach of the Net Debt to EBITDA covenant which will further demolish the SP. For me the Bull case is that S4 now have the infrastructure in place to grow aggressively and with the operational gearing as it is the impact to the bottom line of a decent increase in sales will be significant. In summary, I expect more short term pain but there remains the possibility of multi bagging if the team can deliver good sales growth.
As was mentioned yesterday - most of the UK institutional investors seem to have sold out to US investors - I'm wondering if the US investors that want to continue adding to their positions are now having to buy through the stock exchange which is pushing the price
Thanks Nige,
Given the gradual shift to US based investors and away from the UK you would hope that this will now provide greater stability to the SP going forward, particularly as the new investors are not tainted by on-going unrealised losses to the extent the older UK investors were. Additionally, you would hope and expect that given the size of some these holdings they had direct access to SMS and the team and have formed a very positive opinion on the future prospects of S4.
I am beginning to wonder if the reason directors are not buying is that the business is planning to delist and go private - s4 is effectively a collection of immature private businesses that have been melded together to create a PLC but given the growing number of corporate own goals over the recent past and the consequent collapse in share price this is a business that might be best developed outside the glare of the public markets. What this would mean for the future sp I have no idea but obviously in the short term a lower sp would be better for the sponsors.
Can't make up my mind as to whether this is an absolute bargain or a fraud - I'm tending to think it's the former as it's hard to believe that all the sponsors of the IPO colluded to mislead the market on a fraud - we are used to UK IPO's being materially over priced at launch but this is on a different level given the short time it's been listed. One thing for sure it's not worth 51p - its either 100p+ or zero...finally, you would hope to see some director buying today to steady the ship and reassure investors.
Nige,
Tend to agree but that's the 64 million dollar question - can s4 deliver £100m+ of FCF? - if it can then this share is worth double today's price. I have my doubts for next year but the key for me as long as they generate £50m+ next year AND put out a positive outlook for 2025 then I think we will be in good shape and the sp will rerate.
For those that are interested the Morningstar website publishes a list of institutional buyers and sellers (it’s free) - I noted in the past week Barons have fully exited their holding in s4 (8.5m shares) , this is in addition to Fidelity’s full exit which was completed last week having been started several weeks ago. Let’s hope this marks the end of the selling pressure and the sp can stabilise and rise from here.
Agreed and with 50% of the market cap of the business represented by cash and an unchanged PBIT for 2024 of £15-20m I cannot believe how cheap this business has become. If WJ ever gets back to near its 2021 performance of PBT of £51.1m it will seriously multi-bag from here. I have used this week's SP weakness as a good excuse to add to my position. As always DYOR.
Agree, sadly I think we will see this open below £1 today. Talk about destroying shareholder value, these clowns need to be replaced or the business taken over by someone who know how to run the business.
I put today's fall mainly down to the gloomy results & outlook from M&C Saatchi & I also suspect for this reason and the lack of positive news from S4 (re whoopers etc) that next weeks results will not be overly inspiring.
However in the long run I believe S4 are currently laying the groundwork for a business is capable of growing exponentially and eventually this will be reflected in the share price - especially as net debt falls towards the back end of 2024.
Finally, and tactically, with elections looming in 2024 (in the US and UK) not only do I believe that the incumbent regimes will do all they can to manufacture a mini economic boom, I also think digital communication will be the key tool used to communicate to voters. Both should provide good tailwinds for S4.
In the meantime, I'll do my best to ignore the SP.
IMO one of the biggest issues with S4 is that there are no institutional buyers for the stock and liquidity is therefore provided by a multitude of small investors who are prone to sell at times of stress - what we are seeing is relatively low volumes grinding the SP down day after day. One of the main reasons why there are no institutional buyers is the existence of SMS's B shares which give him greater rights than other ordinary shareholders. Because of these B shares, S4 is not listed in the FTSE250 which reduces demand for the shares from tracker funds as well as normal funds who will not buy due to ESG concerns. If SMS converted his B shares into ordinary shares the SP would receive an immediate boost and also in the longer term provide a deeper pool of potential institutional shareholders which would underpin the SP.
In terms of directors buys - they do seem to have plenty of skin in the game already with many of them having taken S4 shares in exchange for their businesses (which must hurt) - the exception to this is Mary Basterfield, the CFO, who is sitting on a laughably small holding of 20,000 - hardly confidence inspiring for the person closest to the numbers.
I will remain a holder of these shares as I believe next years projected performance will be a game changer and result in a re-rating.
GLA
Hi Advertisingman,
I agree with most of what you say, and I am also heavily invested in s4, in future I can see this trading a significant multiple to todays price -but the business does need to deliver at least this years profits to stabilise investor confidence so it could be a long wait, in addition I think one of the issues holding back the share price is ESG concerns related to SMSs additional powers connected to his shareholding which were granted when the business floated - my understanding is that because of these powers S4 is not in the FTSE 250 and as a result is missing out on tracker funds having to buy its shares. If SMS relinquished these powers we could see a material re-rating - I think we saw a similar thing happen at THG recently.