Sorrell's S4 Capital downgrades forecasts again after slow summer

By Paul Sandle

LONDON (Reuters) -Martin Sorrell's ad group S4 Capital cut its annual forecast for the second time in as many months on Monday, saying a fear of recession was making its clients cautious, sending its shares down 27% to an all-time low.

S4 Capital, founded by Sorrell after he left WPP in 2018, said its like-for-like net revenue was now likely to fall year-on-year after slower-than-expected trading over the summer.

It also reduced its operational core earnings margin guidance to 12% to 13.5%, down from July's 14.5% to 15.5%.

Sorrell said it was a "mixed picture" across clients and regions, with three factors influencing the market.

"One, tech clients have been more hesitant on spending," he said in an interview.

"Second, packaged goods companies have been increasing prices in line with inflation or above and they fix their ad budgets on net revenues.

"The third is that regional and local clients have been quite soft, that's the big difference we've seen between last year's first half and this year's."

It reported operational core earnings of 36.5 million pounds ($45.2 million) for the six months to end-June, down 30.2% on a like-for-like basis and short of analysts' expectations.

Shares in S4, which reached a high of 878 pence two years ago, fell to 69 pence. WPP was trading down 2%.

S4 said it would be "disciplined" on costs given the slowdown in net revenue growth to just over 5% from nearly 28% in the first half of last year.

Sorrell said headcount had been reduced from 9,000 to 8,500.

"You have to be much more selective about where you place your chips," he said.

Analysts at Citi said that even with the downgraded forecast suggesting a 15% to 25% cut to full-year consensus, "there is a sense that it is still reliant on a robust Q4".

($1 = 0.8072 pounds)

(Reporting by Paul Sandle; editing by Sarah Young and Louise Heavens)