- Advertising arm under pressure
- 'High growth specialisms' performing well
A glance at M&C Saatchi’s (SAA) headline figures would suggest all is hunky-dory at the advertising group. Margins are widening, adjusted profit before tax is up by more than a half, and billings are on the rise.
Its statutory results tell a rather different story, however. While revenue is increasing, operating profit fell by 61 per cent in the first six months of 2022 and profit before tax plunged by 94 per cent to just £300,000.
The discrepancy is largely a result of a “prolonged hostile takeover process”. M&C Saatchi received competing offers from AdvancedADVT (AdVT) and Next Fifteen Communications (NFC) this year. Costs relating to the takeover bids amounted to over £8.3mn, including £811,000 of senior management costs, and uncertainty about the group’s future still weighs on its share price.
M&C Saatchi’s profit profile has also changed significantly. In the first half of 2021, over 40 per cent of adjusted operating profit came from advertising and customer relationship management (CRM). However, this division had a very tough year, following a reduction in Home Office revenues and census work that was carried out in 2021. Margins shrunk as a result, and operating profit dropped by almost 40 per cent.
In contrast, the company’s ‘high growth specialisms’ arm had an excellent year, with profit up by 51 per cent. As such, advertising and CRM now make up just 18 per cent of operating profit. Management said the division’s operating profit margin should improve in the second half “as it does most years due to the seasonal increases in client spending”. 2022 will put that theory to the test.
There are strong elements in the results. The group is carefully managing its cash, and borrowings due within one year are significantly lower than in 2021 (lease liabilities remain high, however). It is also confident that it will meet its full-year profit forecasts and reinstate dividends at the end of 2022.
Uncertainty abounds, however. Hold.
Last IC View: Hold, 154p, 21 Sep 2021
| M&C SAATCHI (SAA) | ||||
| ORD PRICE: | 155p | MARKET VALUE: | £190mn | |
| TOUCH: | 151-159p | 12-MONTH HIGH: | 227p | LOW: 140p |
| DIVIDEND YIELD: | nil | PE RATIO: | 26 | |
| NET ASSET VALUE: | 26p* | NET DEBT: | 46% | |
| Half-year to 30 Jun | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2021 | 171 | 4.78 | 1.27 | nil |
| 2022 | 222 | 0.30 | -3.38 | nil |
| % change | +29 | -94 | -366 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £41.8mn, or 34p a share | ||||
