M&C Saatchi shares fall despite assurances of margin growth as group revenues suffer from advertising industry headwinds
- Industry concerns have impacted ‘the pace of business in the second quarter’
- But the company promises pretax earnings and operating margin growth this year
M&C Saatchi has warned that a challenging advertising environment will continue to weigh on revenues this year.
The advertising group warned in its annual results in April of “clear and distinct headwinds” hitting the industry and the wider economy, saying on Wednesday that continued pressure “has affected the pace of business in the second quarter.”
The company, which has been the subject of two separate takeover attempts in the past year, told investors that this would result in a “small drop” in like-for-like revenue in the coming year.
M&C Saatchi Shares fell 10.7 percent to 155 pence in early trading, taking year-to-date gains to just over 6 percent.
The group told investors it is benefiting from strength within its passions, consulting and issuing specialties
The shareholder rebuke came despite assurances from the company that it would deliver year-over-year growth in total pre-tax earnings and an improvement in overall operating margin.
M&C Saatchi said this would be achieved through ‘high operational acceleration inherent in the business model, targeted cost savings and the global cost efficiency program’.
It added: ‘The more challenging trading environment…is continuing and has impacted the pace of business in the second quarter, particularly in the advertising and media specialties.
“However, the company is benefiting from the diversity of companies, with the passions, consultancy and issue specialisms continuing to perform strongly.”
In April, the group forecast a pre-tax profit of £36.5m to £38m, up 15 to 19 per cent from its record profit of 2022.
Analysts from Peel Hunt cut M&C’s revenue forecasts by 5 percent on Wednesday “to reflect a major drop in advertising,” and cut pre-tax profit forecasts by 7 percent.
Peel Hunt said: ‘While it is not ideal that trade has been a challenge for advertising and media, leading to today’s downgrade, the problem is not an isolated one for M&C.
“However, we were encouraged to see the other verticals, such as issues and passions, perform well and provide diversification within the portfolio.
“Management’s focus on internal efficiency should begin to bear fruit this year, which we believe will benefit the group in the longer term.”
Peel Hunt maintained a buy rating with a price target of 260 pence.
M&C rejected a takeover offer from AdvancedAdvT in May last year and removed Vin Murria, its largest shareholder, from its board the following month.
Shareholders of the advertising company also later voted against a takeover by marketing group Next Fifteen, despite initially supporting it.
At the time, M&C said its directors looked forward “to continuing the execution of M&C Saatchi’s strategy as an independent company.”
In April, it was revealed that M&C’s new non-executive chairman, Zillah Byng-Thorne, the former chairman of Wallpaper and Homes & Gardens publisher Future, has built up a stake in the company before joining the board this summer.
Saatchi was founded in 1995 by brothers Maurice and Charles Saatchi after the pair were ousted from the agency they started 25 years earlier, Saatchi & Saatchi.
Known for its close ties to the Conservative Party, its clients include some big corporate names ranging from retail giant Amazon to fashion brands Burberry and Hugo Boss and the Dutch flagship airline KLM.