Regarding the firm’s services, it called attention to its quick turnaround times and good value, given the low costs of its production hubs in Buenos Aires and India.
On the company’s growth outlook, Morgan Stanley said: “We think the rapid shift to digital and the changing landscape of marketing services (tech giants, in-housing, consultancies) favour S4,and that Covid-19 disruption may further accelerate change in favour of digital-led models.
“The success in the early 2000s of the digital media buyer Aegis is a template for S4’s potential.”
There were of course risks to keep in mind, such as S4’s limited track record and the higher-than-normal risk to its forecasts due to its rapid growth profile.
“The company’s ability to select attractive assets and to integrate them successfully is key,” the broker added.
On the flip-side, the key growth drivers identified by Morgan Stanley were the company’s “substantial” addressable market, 15-20% growth per annum in digital, tiny market share, demonstrable ability to attract major customers and the strong growth of tech customers.
Over 2020-23, S4 was seen growing its sales, EBITDA and earnings per share at rates similar or quicker than the European Internet services sector.
Yet the latter were trading on revenue, EBITDA and earnings-per-share multiples of 14.3, 24.6 and 37.6, against 3.3, 15 and 24 times for S4 at current share price levels.
Morgan Stanley therefore set a 380.0p target price.