The fashionable advertising agency S4 Capital, headed by the highly reputed and very opinionated Martin Sorrell, sank 26% on the stock exchange, to GBX 71.53, after lowering its targets. That's the problem with market darlings who systematically exceed expectations: when they stop, the backlash is often terrible. The other problem is that this is the second alert in two months.
This morning, S4 Capital said it expected net sales to fall this year, with an operating margin of between 12% and 13.5%, compared with the 14.5% to 15.5% it had hoped for. This is due to "difficult global macroeconomic conditions and cautious customers fearing a recession".
Martin Sorrell's magic-touch is on the wane
On July 24, S4 had already disappointed investors, causing the stock to plunge 21%. This time, management tried to make up for it by promising to return cash to shareholders through dividends and share buybacks. This was not enough to cheer up the market, which had been very generously valuing the company for its exceptional growth in recent years. Now that the magic has worn off, the shock of reality is rather brutal.