Hedge fund reveals first bet against Sorrell comeback

HEDGE fund GLG Partners has become the first to reveal a bet against Sir Martin Sorrell’s S4 Capital, underscoring the challenges faced by the advertising mogul and his comeback venture.

GLG, an arm of FTSE 100 Man Group, has disclosed a £5m short position against S4 amid a global downturn at the tail end of a turbulent year for the company. The bet is based on borrowing a 0.5pc stake in the London-listed business. It stands to gain if S4 shares, down 38pc since the turn of the year, fall further still.

Sir Martin launched the online advertising specialist in 2018 following an acrimonious departure from WPP, which he built up over decades.

The company grew rapidly via dozens of acquisitions, with its market value ballooning to £6.7bn by September 2021, boosted by a string of contracts with tech giants such as Google, Facebook, Netflix and Uber.

However, in March, the company suffered an embarrassing accounting fiasco, which forced it to delay annual results by a month.

Investors were then spooked by a July trading update which said rising staff costs at S4’s content division had outpaced sales and profit growth, prompting bosses to institute a hiring freeze and trim profit forecasts from £154m-£165m to £120m. S4 has said its balance sheet remained strong.

At the time, Sir Martin insisted that the reduction in forecasts was “prudent” and based on a judgement that the content division’s predictions were overly optimistic, adding: “How many companies do you know that are growing by 25pc year-on-year?”

Shares in S4 have more than halved in the last year, valuing the company at just under £1bn.

The risk of recession also hangs over ad agencies like S4, as clients seek to tighten their belts amid an economic downturn.

Last week, Google’s parent company revealed the first ever decline in advertising revenues at its YouTube video streaming service in the latest sign of a slowdown in the global economy.

GLG’s bet that S4’s shares will slump goes against the market consensus, with the majority of equity analysts that cover the company giving it a “buy” rating, meaning they expect the share price will recover.

Sir Martin’s advertising business will report its third-quarter results next month.

S4 Capital and GLG Partners both declined to comment.