M&C Saatchi (LON: SAA) shares are down 16% on the trading update released just before the AGM. Which is going to make that AGM fairly interesting really - we'd expect more than the occasional sharp question to be asked from the floor. There was, after all, all that excitement at the price that was on offer for M&C Saatchi back at the time. Vin Murria was offering new shares in the new company plus some small amount of cash (40p) in what was really, when properly thought about, a management coup. The bid failed on the fall in the value of the new equity more than anything else.
This brings us o to the current environment. And for advertising companies it's just not good. Business is generally slow. The industry always shouts out that hard trading conditions are exactly the time when people must advertise - because that's how to stay ahead in hard times. The businesses spending the money never do quite buy that argument - we've been through one such drought ourselves. Keeping the staff paid just does seem to come above spending on TV or print ads, even if the management do realise that that's not the optimal response for the long term.
Another way of putting this is that advertising companies are leveraged, geared, to more general economic conditions. Which tells us something interesting about those more general conditions in fact - for we can also read this the other way around.
M&C Saatchi share price from London Stock Exchange
The announcement is: “The more challenging trading environment, as widely reported across the sector and previously referenced in the Company's 2022 full year results announcement, has continued, and has impacted the pace of business into the second quarter, particularly in the Advertising and Media specialisms.” Managements just aren't willing to spend the money on non-immediate expenses like advertising. The big companies continue to spend but at the margin there's a drop off.
Well, that's just how that sector is working at present. But that lesson for us. As we all know there's significant shouting that companies are making ever larger profits at present. That “greedflation” argument in both the US and UK. But if we're seeing something associated with economic hard times - a fall off in advertising spend - then it's not obvious that companies are making excessive or even large profits. The most recent macroeconomic numbers also confirm this.
As far as M&C Saatchi is concerned yes, they're cutting costs and doing the best they can. But the real swing will be when there's a swing in those general economic conditions. Simply because the ad biz really is leveraged, geared, to those more general conditions.
