M&C Saatchi CEO ups stake following strategy overhaul

M&C Saatchi’s (SAA) chief executive, Moray MacLennan, purchased £500,000-worth of shares this week, increasing his stake to 0.46 per cent of the company's issued share capital.  

The advertising group’s shares have staged a remarkable comeback since last year's nadir in April, more than tripling in the intervening period, albeit from a relatively low base. The shares had originally clicked into reverse after a series of accounting errors forced it to make £11.6m-worth of adjustments to its 2018 and 2019 financial results. In view of recent accounting scandals, the revelation was never going to play well with the market.  

That is not to say that M&C Saatchi’s retracement does not have further to run. Its shares have bounced by a quarter over the past week or so, since MacLennan outlined a new set of targets to be achieved by 2025. They include a net revenue growth rate of 6 per cent CAGR (compound annual growth rate), operating profit growth of more than a quarter and a group operating margin of 18 per cent. These are especially ambitious given the wider economic pressure on the advertising industry, as well as the fact that the group said it is not expecting to spend much on additional investment.  

Management is likely to have been emboldened by recent trading, with the results for the 2020 financial year expected to beat the initial expectations set out in its half-year results in October. The chief executive has only been at the helm for three months, after his predecessor, as well as a number of other senior directors, left the company following 2019’s accounting scandal. But judging by the trajectory of the share price so far this year, the new chief executive’s strategy has already succeeded at winning back some investors.

MacLennan’s apparent optimism may be well placed. Analysis from Dentsu Group Inc – one of the largest advertising agency networks in the world – predicts that global advertising spend will increase by 5.8 per cent in 2021, with digital channels forecast to increase 9.1 per cent to a share of 57.5 per cent of total expenditure.

And his tacit vote of confidence is mirrored in another sizeable industry deal, as Peter Miles Young, ex-head of Ogilvy & Mather and current non-executive director of Sir Martin Sorrell's digital advertising firm S4 Capital (SFOR), added shares worth around £100,000 to his self-invested personal pension. But he isn’t the only one in an acquisitive mood.

Following on from deals to bring in two US agencies, S4 Capital is absorbing Tomorrow, a Shanghai-based creative agency, within its MediaMonks content practice. The addition of Tomorrow dramatically increases the scale of its Chinese operations, while indirectly bringing in big-ticket brands such as Coca-Cola, Starbucks and Red Bull.

It is not difficult to appreciate the rationale behind the deal. Indeed, S4 Capital pointed to analysis from Credit Suisse which estimates that China’s online advertising market is worth over $107bn (£78bn), with growth of 18.1 per cent anticipated through 2021.

The Chinese deal presaged two further corporate actions in the first quarter, as MediaMonks merged with Staud Studios, a Germany-based creative production studio specialising in the automotive industry, while S4’s MightyHive digital media consultancy acquired the assets of Datalicious, a Google marketing platform in Asia Pacific from Equifax Inc.

Executives at both S4 and Saatchi will be hoping that predictions of a resurgence in the media and entertainment sector will come to pass in 2021, as it will offer material opportunities for broadcasters and, by extension, the advertising fraternity. Hold M&C Saatchi at 119p. 

Last IC View: Sell, 101p, 11 Dec 2019