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S4 Capital, SFOR, Loses £950 Million In Value – Are The Accounts That Bad?

Tim Worstall
Tim Worstall trader
Updated 31 Mar 2022

Trade S4 Capital Shares Your Capital Is At Risk

Key points:

S4 Capital (LON: SFOR) shares dropped 36% to 310 yesterday – and have recovered 7% this morning – on the announcement that the accounts have been delayed again. S4 is, of course, Sir Martin Sorrell’s return to the market, his vehicle to show the guys at WPP what really can be done after they dispensed with his services.

Not being able to announce your trading results and accounts on time really is not a good look for a listed company. Thus the perhaps extreme reaction to this latest delay. The big question though is what happens to the price next? For that, it’s necessary to consider why the accounts have been delayed – also, do we believe the announced reasons.

Back on March 1, S4 announced that PwC wouldn’t be able to complete the preliminary results work in time for the scheduled announcement and that results would therefore be delayed until March 31. Today that is, of course. This did produce a 10% slump in S4 Capital shares but they recovered. For the explanation – covid, omicron, travel and so on – seemed reasonable enough at the time.

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The problem with that delay was not, in fact, much of a problem that is. But then yesterday, S4C announced that they’d just – at 2,30 pm – been informed by PwC that they wouldn’t be ready to announce those results today. This is not, at this first stage of examination, a fault or problem at S4C even though clearly it’s the S4 Capital share price that takes the hammering. This is PwC not being able to complete its work on time.

But announcements like that, mere hours before the scheduled release, that’s not a good look. But what turns this into that near £billion loss in market capitalisation is the worry that it’s not just PwC’s inability to deal with omicron related travel worries etc. What if there actually is a real problem in those accounts?

This isn’t entirely unknown of course. The number of companies who have found that the sums don’t add up like they think they do is rather long after all. And that’s the decision for us to make as traders.

SFOR says that, as far as they know at least, the results are going to be in line with current market expectations. So, this is indeed simply a matter of the accountants pulling their fingers out. If that is so we might then expect a rise back to the former valuation, some 25% or so above the current share price. On the other hand, if there is some horror in those accounts that is leading to the delay then that would be the second shoe dropping and we might expect a further decline in the price.

Trying to decide upon this is difficult for of course, we’ve no information as to which way this is going to go. So it’s difficult to trade even as there is obviously something to trade there.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.