Shares in Sir Martin Sorrell’s digital advertising company, S4 Capital, slid further on Thursday, as concerns grew that a second delay in publishing its financial results indicated a potential problem with the accounts.
The London-listed group’s share price fell as much as 14 per cent on Thursday, following a decline the previous day that wiped more than a third — or almost £1bn — from its market value.
The shares recovered to close about 7 per cent lower but the scale of the sell-off “suggests the market may be concerned that the delay is the result of an accounting issue”, said analysts at Barclays.
S4, which hired a new chief financial officer in January, said on March 1 that PwC, its auditor, needed more time to sign off its results due to the impact of Covid on “travel and resource allocation”.
On Wednesday, S4 issued a second statement saying PwC had not been able to complete “the work necessary” for it to go ahead with a planned release of preliminary full-year results the following morning.
The second statement did not mention any issues relating to the pandemic and did not give any indication of when the company would release the results. S4 said it would publish them “as soon as PwC have completed their work”.
One analyst, who declined to be named, said S4 had been “eerily and worryingly silent” after it declined to explain the delay on Thursday.
A conversation with S4 revealed the reason for the hold-up was “no longer a resource issue”, said analysts at Morgan Stanley. “The lack of a revised date for the publication of results suggests the aspect of the audit in question is non-trivial and means the auditors are unable to complete their work within a specified timeframe,” they said.
S4 declined to comment on whether it had discussed the situation with the UK’s Financial Conduct Authority but said it would “provide information as requested, if necessary”.
PwC, which has been paid £2.5mn for signing off S4’s accounts and checking its interim results in the past three years, declined to comment.
Sorrell launched S4 in 2018 following a tumultuous departure from WPP, the world’s largest advertising group that he had built over three decades. His new venture has expanded rapidly, acquiring 29 media companies since its inception. It now employs “over 7,500 people in 33 countries”, according to its website.
S4’s deals have included the €300mn purchase of Dutch business MediaMonks in 2018, which it merged last year with MightyHive, a San Francisco ad tech company purchased in a $150mn deal.
Before Wednesday’s announcement S4’s market capitalisation was £2.6bn. That had dropped to around £1.6bn by Thursday afternoon, according to FactSet, with the shares closing at 289p — just over a third of the 772p target price set by analysts, according to a consensus compiled by Bloomberg.
Many of S4’s deals have been funded by the company issuing shares rather than paying in cash, indicating that a sustained fall in its share price could complicate further acquisitions.
One industry executive said the hold-up could be related to an issue such as producing the paperwork and evidence required by PwC to justify accounting assumptions underpinning some of the media group’s acquisitions. This was more likely the reason for the delay than a fundamental problem with its books, he suggested.
S4 said on Wednesday that its financial performance would “remain within the range of market expectations”.
But analysts at Morgan Stanley said it was “hard to avoid the conclusion” the additional delay created “a degree of uncertainty” regarding its financial performance and asset position.
A senior accountant at another firm said some UK companies’ results were being held up due to “management pushing to release before auditors have completed final checks”, rather than due to Covid-related disruption or any large errors.
Accounting firms have also faced a shortage of qualified auditors. PwC’s UK boss said in December that attrition levels for recently qualified auditors had increased in the past year and that 85 per cent of its newly hired qualified auditors in the first quarter of 2021 would be from overseas, suggesting a lack of suitable candidates domestically.