Citi has identified S4 Capital , a U.K.-headquartered digital advertising and marketing services company, as a high-risk but potentially attractive investment opportunity. Despite the company’s recent struggles and a challenging short-term outlook, the Wall Street bank believes that S4 Capital’s stock could see a significant upside of 280%, with a price target of 230 pence. U.K. shares are generally priced in pence, with 100 pence equal to one British pound ($1.27). S4 Capital’s stock is also traded over the counter in the United States. Founded by advertising industry veteran Martin Sorrell, S4 Capital has faced a difficult year in 2023, with core earnings falling by 25% on the back of reduced spending from its tech-heavy client base and a slowdown in new business wins. The company’s like-for-like net revenue dropped by 4.5% to £873.2 million, while earnings declined by 24.6% to £93.7 million, resulting in a margin squeeze from 13.9% in 2022 to 10.7% in 2023. The company has reportedly been the subject of takeover interest recently, partly due to its flailing share price. The rejected-acquisition interest, revealed by The Wall Street Journal last month, appears to have stemmed the downward spiral for the stock. While shares are up nearly 15% this year, the stock has declined by 60% over the past 12 months. SFOR-GB 1Y line The company has said it also expects continued pressure on the top line and a broadly similar outcome for the bottom line in 2024. Despite the cautious outlook, Citi analysts see potential for the business to rebound in the medium term. The investment bank’s analysts highlighted that while the short-term outlook remains cloudy, “there is potentially still a lot to stay excited about medium term.” “Specifically, we think the group will be well placed to re-accelerate once the tech sector stabilises and project-based work picks up as our [Chief Marketing Officer’s] survey suggests it will,” said Citi analysts led by Thomas Singlehurst, in a note to clients on March 28. Citi said that investors who can afford to take a 12-month view consider the risk-reward profile of the stock, which they believe continues to look “attractive.” As a result, Citi said S4 Capital is a “Buy” rated stock with a “High Risk” designation and a price target of 230 pence. The stock has a consensus price target of £0.70, representing a potential upside of 14%.
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