M&C Saatchi shares sink despite assurances of margin growth, as it suffers advertising industry headwinds
- Sector woes have impacted ‘the pace of business in the second quarter’
- But firm vows pre-tax profit and operating margin growth this year
M&C Saatchi has warned a challenging advertising environment will continue to weigh on revenues this year.
The advertising group had warned in its full-year results in April of ‘clear and obvious headwinds’ affecting the sector and economy more broadly, and on Wednesday said continued pressure ‘has impacted the pace of business into the second quarter’.
The firm, which has been the subject of two separate takeover attempts over the last year, told investors this would result in a ‘small decline’ in like-for-like revenues in the year ahead.
M&C Saatchi shares fell 10.7 per cent to 155p in early trading, paring year-to-date gains to just over 6 per cent.
The group told investors it is benefiting from strength within its passions, consultancy and issues specialisms
The shareholder punishment came despite assurances from the firm that it would deliver year-on-year headline pre-tax profit growth and headline operating margin improvement.
M&C Saatchi said this would be achieved via ‘high operational gearing inherent in the business model, targeted cost savings and the global cost efficiency programme’.
It added: ‘The more challenging trading environment… has continued, and has impacted the pace of business into the second quarter, particularly in the advertising and media specialisms.
‘However, the company is benefiting from its diverse range of businesses, with the passions, consultancy and issues specialisms continuing to perform strongly.’
In April the group forecast pre-tax profits of £36.5million to £38million, representing a 15 to 19 per cent increase on 2022’s record profits.
Analysts at Peel Hunt on Wednesday cut M&C revenue forecasts by 5 per cent ‘to reflect a large decline in advertising’, and downgraded pre-tax profit forecasts by 7 per cent.
Peel Hunt said: ‘Whilst it is not ideal that trading has been challenging for advertising and media, which led to today’s downgrade, the issue is not isolated to M&C.
‘However, we were encouraged to see the other verticals such as issues, and passions performing well and providing diversification within the portfolio.
‘Management’s focus on internal efficiencies should start to bear fruit this year, which we believe will benefit the group over the longer term.’
Peel Hunt maintained a buy rating with a target price of 260p.
M&C rejected a takeover offer from AdvancedAdvT in May last year and removed Vin Murria, its biggest shareholder, from its board the following month.
Shareholders in the advertising company later also voted against a takeover by marketing group Next Fifteen, despite having initially backed it.
At the time, M&C said that its directors looked forward ‘to continuing the implementation of M&C Saatchi’s strategy as an independent business’.
In April it was revealed that M&C’s incoming non-executive chair Zillah Byng-Thorne, the former chair of Wallpaper and Homes & Gardens publisher Future, has built up a stake in the firm ahead of joining its board this summer.
Saatchi was founded in 1995 by brothers Maurice and Charles Saatchi after the pair were ousted from the agency they started 25 years previously, Saatchi & Saatchi.
Known for close ties to the Conservative Party, its clients have included some major corporate names, ranging from retail giant Amazon, to fashion brands Burberry and Hugo Boss and Dutch flagship airline KLM.
