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I tend to agree with the sentiment that the Layoff's story is a precursor to another profits warning in Sept. However, I also believe that in the absence of sales growth (highly unlikely) the only thing S4 can do to improve its finances is to reduce costs which means staff cuts - last year staff costs were £581m out of a total cost base of £728m - taking 10-20% of staff costs whilst maintaining sales around current should mean that the business is finally profitable. It also makes S4 more attractive to potential bidders if the heavy cost saving lifting has been done. That's the bull case IMHO. The bear case is that trading is much worse than expected and the cost cuts are not meaningful so the business limps on for another year.

GLA

CN,

I suspect what has happened here is that BoA have exercised all the outstanding warrants - the BoA stake is the same as the 83.5m outstanding warrants that the company disclosed in jan. This would account for the muted sp impact - the question

for me is - what do BoA intend to do with the shares?

I'm with you - I've sold 50% of my holding - this might recover in time but the opportunity cost of holding these waiting for a recovery is no longer worth it. MS is becoming the King Canute of the corporate world....

I see that Peel Hunt have only reduced their Operational EBITDA forecast by 4-6% for 2024 - which if this is accurate is stronger than today's update implies - personally, I'll wait to hear what is said on the 9am call before deciding what to do next but its beginning to feel hard to see how they turn this around without combining with another business.

I will be interested to see what the company has done to right size its cost base on Thursday. By far the biggest cost is Staff Costs which were £670.8m last year against revenues of £873.2m or 77%. This compares to WPP who has Staff costs of 68% against revenues (£8.1b / 11.9b) . If market revenue forecasts for this year are correct (£832m) then last years Staff costs would rise to 80.6% of revenues. If Staff costs are cut in line with WPP's ratio of 68% then Staff costs should be around £566m for 2024 - a saving of £105m compared to 2023. Unlike revenue, you would expect management to be more in control of its cost base - particularly staff costs which given all the efficiency noise around Digital and AI etc should be if anything lower that WPP's. I would imagine the excessive staff numbers were built up on over optimistic revenue growth forecasts - for me its time for management to accept the reality of lower (negative) growth and right size the cost base for a sub £1bn turnover business.

With the sp trading at current levels there is a lot of talk about the possible Stagwell offer, which obviously looks like a great price today - however, if there was an offer at the touted price of 85p last October it must be remembered that S4 had been trading at 100p in mid Sept and low 60's by the end of Oct - in that context the offer was opportunistic and never going to be entertained. As I see there are only two ways to get the SP moving - get back into growth - top and bottom line - or slash costs so that even at £850m t/o it makes a decent profit - as they have not yet gone for the latter option (which is always available to them) i continue to hold in the hope that they will get there act together in 2025. GLA

The silence is deafening in terms of H1 trading update which was delivered on 24th July in 23 and 21th July in 22. I have two competing theory’s on this: 1. Trading in H1 was poor (as signposted in the Agm update) and they are delaying in the hope that the H2 outlook improves or 2. There is corporate activity going on - I find it interesting that the 3 ex plc directors made material share purchases in June and July - 14/6 Brady 1.4m shares, 2/7 Wesley 1m shares, 2/7 Scott 54k shares, they even managed to issue the reluctant cfo Mary B with 77k share options on 24/7. As a shareholder i am hoping for 2nd theory obviously but has anyone else got thoughts on why we are now 2-3 weeks late on H1 update?

By my calculations they have about £250k still to go.

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.

Agree, re CFO but management have collectively been very poor at managing expectations, - net debt is a shocker - can’t see this trading above 60 again for a while.

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.