M&C Saatchi's shares look cheap as its tranformation starts to bear fruit

2023 was a tough year for M&C Saatchi (SAA). The advertising agency saw adjusted operating profit fall by 8 per cent to £32.4mn on the back of lower sales and slimmer margins. Statutory operating profits were significantly worse at £7.3mn.

The largest division, advertising, reported an 8 per cent decline in like-for-like net revenue, while media – which represents about a tenth of the group – saw like-for-like sales tumble by 21 per cent. The ‘issues’ and ‘passions’ businesses fared significantly better, but it was not enough to offset the trouble elsewhere.

However, the company is now in the grip of transformation. Sales declined at a slower rate in the second half of 2023 and profitability actively improved: the adjusted operating margin jumped from 8.3 per cent in the first half to 16.9 per cent in the second.

This is largely the result of new management. Under the leadership of chair Zillah Byng-Thorne – fresh from Future (FUTR) –  the group is on track to make £10mn of cost savings by the end of this year. The focus will be on scaling back head office costs and rationalising the property portfolio.

Zaid Al-Qassab will be taking up the role of chief executive in May, having been poached from Channel 4.

Transformation doesn’t come cheap, and M&C Saatchi expects one-off costs to rise above the £3.3mn incurred in 2023. Meanwhile, the backdrop for advertising remains very uncertain and the new board is still finding its feet. 

The latest results suggest a “leaner and more agile business” is within reach, however. And, given that M&C Saatchi trades on just nine times forward earnings, the shares certainly look cheap. Buy.