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Investing.com -- S&P Global Ratings has downgraded its long-term ratings for digital advertising and marketing services group S4 Capital PLC from ’B+’ to ’B’, citing weaker recovery prospects than previously anticipated. The company’s senior secured debt was also downgraded to ’B’, although the recovery rating remains at ’3’, indicating a rounded estimate of 60% recovery in the event of a default.
The downgrade reflects a forecast of weaker-than-expected revenue and earnings for S4 Capital in 2025-2026, and an expectation that leverage will remain at 4.0x or higher. The company is expected to experience a low single-digit decline in its organic revenue in 2025, largely due to potential cuts or delays in its clients’ advertising spending amid worsening macroeconomic conditions.
S4 Capital, which derives about 78% of its net revenue from North America, is also expected to face a slower recovery of spending by technology clients, which have significantly reduced spend over the past two years. Recent contract wins are expected to contribute to the company’s revenue and earnings from the second half of 2025. However, the company’s organic revenue growth is expected to continue lagging behind its peers.
S4 Capital’s business is smaller and less diverse than that of larger advertising holding companies, making it more susceptible to economic downturns and higher volatility in its operating and credit metrics. The company’s adjusted debt to EBITDA is expected to remain at 4.0x or higher in 2025-2026.
S4 Capital’s technology clients, which account for about 45% of the company’s revenue, have reduced spending since 2022. The company has also faced some client losses in 2024, which are expected to be only partly offset by new business contributing to revenue and earnings from the second half of 2025.
Despite these challenges, S4 Capital is expected to generate positive free operating cash flow (FOCF) and retain some cost flexibility, which supports the rating. The company reduced costs in 2024, mainly by reducing its headcount to approximately 7,150 at the end of 2024 from 7,700 in 2023. It is expected to maintain tight control over operating costs in 2025 and adjust them according to top-line growth.
S&P Global Ratings’ stable outlook for S4 Capital is based on the expectation that the company will return to organic revenue growth in 2026 and continue to prudently manage its cost base, maintaining adjusted debt to EBITDA of 4.0x-5.0x. The rating could be lowered if the company’s top line continues to decline amid challenging macroeconomic conditions or if a loss of contracts increases uncertainty regarding its long-term growth prospects. Conversely, the rating could be raised if S4 Capital returns to solid organic revenue and EBITDA growth, based on increased spending by existing clients and new contracts.
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