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One UK share I own has soared lately, with the price going up 29% in less than a fortnight. Yet it still trades for pennies and looks cheaper than US rivals on a price-to-sales ratio.
I recently topped up my holding a bit by buying some more shares. Below, I explain why.
Troubled history
The UK share in question is S4 Capital (LSE: SFOR). Although headquartered and listed in London, the main market for the digital advertising agency network is actually North America.
Although the recent price action has been positive, on a longer term perspective, S4 has done horrendously. The share price has halved in the past year alone and is down 63% over five years. Even worse, it is down 93% since a 2021 high.
What went wrong – and is the price a possible bargain if it gets fixed?
Lots to prove
The share price collapse has been a combination of different factors. S4 always divided opinions in the City and when it repeatedly delayed publishing its accounts a couple of years ago, it badly hurt in a reputation.
The company has implemented new accounting controls since then and vowed never to have a repeat of the episode. But the reputational damage lingers.
The digital market has seen some demand declines in the current economic environment, with net revenues in the first quarter declining 15% year-on-year. Net debt topped £200m, at a company with a market capitalisation of just £345m.
Meanwhile, the business remains lossmaking, although last year’s post-tax loss of £6m was a huge improvement on £161m the prior year.
Director buying
Add into that ongoing dilution as the company issues shares as part of past acquisitions and the S4 investment case looks troubled at best.
For a long time, directors did not buy any more shares using their own money even as the price crashed, although in fairness director shareholdings remained substantial.
In the past few weeks though, two directors have stumped up their own cash to increase their holdings.
Cautiously optimistic
Directors can misjudge share prices, like everyone else. But having held off buying any more shares myself without that vote of confidence, the director deals made me look again at S4.
The first quarter looked weak, but the company has consistently said it expects things to be stronger in the second half of the year. Net debt should start to fall as payments for historical acquisitions stop falling due, leaving the company free to buy back more of its shares and potentially initiate a dividend.
While demand remains subdued, S4 has a strong offering as is demonstrated by its roster of blue-chip clients spending millions of pounds each with the company a year.
Clearly, there are risks here. However, I think they have been priced in and, at the current level, I reckon this UK share offers potentially brilliant long-term value.
