CentralNic Group — 51% organic revenue growth in Q122

Team Internet Group (AIM: TIG)

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CentralNic Group — 51% organic revenue growth in Q122

CentralNic has confirmed that revenue growth driven by Online Marketing continued at a very high level in Q122, with 51% organic revenue growth (LTM pro forma revenues of c US$530m). Management expects Q122 revenues of US$156m (US$624m annualised) and adjusted EBITDA of c US$18m (US$72m annualised). This represents an acceleration from 2021, which saw strengthening organic growth throughout the year (Q121: 16%, H121: 20%, 9M21: 29%, FY21: 39%). As a result, management expects CentralNic to ‘materially exceed’ consensus market expectations for FY22 (revenue US$517m, EBITDA US$60m). We have raised our FY22 gross revenue estimate by 11% to US$573m and our adjusted EBITDA estimate by 9% to US$66m. Based on our revised estimates, CentralNic trades on an FY22 P/E of 9.7x and on 7.3x FY22 EV/adjusted EBITDA.

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TMT

CentralNic Group

51% organic revenue growth in Q122

Q122 trading update

Software & comp services

26 April 2022

Price

118p

Market cap

£320m

£1.28/US$

Net debt (US$m) at 31 March 2022

65

Shares in issue
(excludes 17.3m EBT shares)

271.2m

Free float

73%

Code

CNIC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.8)

(4.4)

39.0

Rel (local)

(3.5)

(3.6)

34.2

52-week high/low

150p

82p

Business description

CentralNic Group provides the essential tools for businesses to go online, operating through two divisions: Online Presence (reseller, corporate and SME) and Online Marketing. Services include domain name reselling, hosting, website building, security certification and website monetisation.

Next events

Q122 results

23 May 2022

H122 trading update

July 2022

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

CentralNic Group is a research client of Edison Investment Research Limited

CentralNic has confirmed that revenue growth driven by Online Marketing continued at a very high level in Q122, with 51% organic revenue growth (LTM pro forma revenues of c US$530m). Management expects Q122 revenues of US$156m (US$624m annualised) and adjusted EBITDA of c US$18m (US$72m annualised). This represents an acceleration from 2021, which saw strengthening organic growth throughout the year (Q121: 16%, H121: 20%, 9M21: 29%, FY21: 39%). As a result, management expects CentralNic to ‘materially exceed’ consensus market expectations for FY22 (revenue US$517m, EBITDA US$60m). We have raised our FY22 gross revenue estimate by 11% to US$573m and our adjusted EBITDA estimate by 9% to US$66m. Based on our revised estimates, CentralNic trades on an FY22 P/E of 9.7x and on 7.3x FY22 EV/adjusted EBITDA.

Year end

Revenue (US$m)

Adjusted

EBITDA* (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

12/20

240.0

29.4

18.6

10.0

0.0

15.2

12/21

410.5

46.3

31.9

11.8

0.0

12.8

12/22e**

573.5

65.9

51.1

15.5

0.0

9.7

12/23e**

672.4

76.0

62.5

17.3

0.0

8.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items, share-based payments and non-core operating expenses. **FY22e and FY23e EPS figures reflect 271.2m voting shares in issue (post-placing and open offer).

Contextual advertising appears to be a sweet spot

The level of growth seen in FY21/Q122 cannot continue indefinitely and, as the FY21 comparators get progressively more challenging, together with the impact of broader macroeconomic headwinds, CentralNic is likely to see a natural moderation in its growth over the course of the year. However, the market for contextual advertising forecast to grow at a 13% CAGR to 2026 (source: Global Industry Analysts), supporting the group’s privacy-led growth in the medium-term.

Raised estimates are still conservative

As a result of the continued strong organic growth in Q122, we have conservatively raised our FY22 revenue estimate by 11% to US$573m. This is still well below the Q122 annualised revenue figure (c US$624m), but at this early stage of the year and given the uncertain macroeconomic backdrop, we feel caution is required. Other assumptions remain broadly unchanged, save that we have projected FY21’s rising quarterly adj. EBITDA/net revenue trend to FY22/23, with 42% and 43% margin, respectively. We forecast adj. EBITDA for FY22/23 of US$66m/US$76m, respectively. Our forecasts now reflect shares issued through the open offer.

Valuation: Growth at a reasonable price

On our updated estimates, CentralNic trades on an FY22 P/E of 9.7x and on 7.3x FY22 EV/adjusted EBITDA, markedly below its peer group. It has a seven-year revenue CAGR of 73%, putting it in the top 50 fastest growing technology companies in Europe (FT, 2022). At these levels, CentralNic’s shares appear to offer a compelling proposition, with our upgraded estimates implying 40% revenue growth for FY22, with recurring revenue products contributing over 99% of total gross revenues and strong cash generation, with cash conversion of over 100%.

FY22/23 estimate revisions

Estimates revised upwards, but scope for further upgrades

Management expects Q122 revenues of US$156m and adjusted EBITDA of c US$18m. As a result, management is confident CentralNic will ‘materially exceed’ consensus market expectations for FY22, disclosed as revenues of US$517m and EBITDA of US$60m. We take this to mean revenues will exceed historic consensus by more than 10% in FY22. This is still well below the Q122 annualised revenue figure (c US$624m), which would represent an uplift of 21% from the consensus benchmark and 52% growth year-on-year.

At this early stage of the year and given the uncertain macroeconomic backdrop, we feel that we should err on the side of caution and have conservatively raised our FY22 revenue estimate by 11% to US$573m (40% growth y-o-y). Other assumptions remain broadly unchanged, save that, noting the increase in adj. EBITDA/net revenue on a quarterly basis throughout FY21 with the benefit of improving operating leverage, we have reflected a rising trend on our FY22/23 estimates by introducing a 43% margin for FY23, where previously the margins were both 42%. This leads us to forecast net revenues (gross profits) of US$157m in FY22 and US$177m in FY23, with adjusted EBITDA of US$66m and US$76m, respectively.

The only other changes are that with the continuing increase in revenues recognised in Germany, we have raised the normalised tax rate from 20% in FY22 to 25% in FY23. Finally, we have also assumed that share-based payments in FY22/23 will continue at a similar level to FY20/21, introducing a c US5m charge for each year.

Exhibit 1: Edison’s revised estimates

Year end 31 December

US$'000

Actual
2021

Y-o-y growth (%)

Old
2022e

New
2022e

Change (%)

Old
2023e

New
2023e

Change (%)

Gross revenue

410,540

70%

516,125

573,473

11%

605,201

672,446

11%

Net revenue

118,499

55%

144,515

157,022

9%

166,430

176,712

6%

Adj. EBITDA

46,251

51%

60,634

65,949

9%

69,888

75,986

9%

Profit before tax (norm)

31,939

61%

46,316

51,140

10%

56,990

62,514

10%

Profit before tax (reported)

1,555

15,361

15,147

28,143

28,590

Net income (normalised)

26,842

29%

40,329

40,912

1%

46,561

46,886

1%

Average number of shares outstanding (m)

227,381

16%

261,321

263,341

1%

268,692

271,192

1%

EPS - basic normalised (c)

11.80

12%

15.43

15.54

1%

17.33

17.29

(0)%

*EPS - diluted normalised (c)

10.69

5%

14.35

14.46

1%

16.15

16.12

(0)%

Revenue growth (%)

71.0

25.7

39.7

17.3

17.3

Gross margin (%)

28.9

28.0

27.4

27.5

26.3

Adj. EBITDA margin (%)

11.3

11.7

11.5

11.5

11.3

Adj. EBITDA / Net Revenue (%)

39.0

42.0

42.0

42.0

43.0

Capex

(3,555)

(17)%

(5,830)

(6,478)

11%

(6,837)

(7,596)

11%

Closing net debt/(cash)

74,975

(12)%

68,359

59,724

(13)%

35,526

21,909

(38)%

Source: CentralNic accounts, Edison Investment Research. Note: *Edison assumes a total of 288.7m fully-diluted shares, including employee benefit trust shares in the fully-diluted EPS calculation.

Following completion of the open offer, we now calculate that there are 271.2m voting shares in issue (excluding shares held by the employee benefit trust, whose dividend and voting rights are suspended) and 288.7m shares in issue on a fully diluted basis, including shares held by the employee benefit trust, which covers materially all options currently in issue.

What is underlying Online Marketing’s growth?

The level of growth seen in FY21/Q122 cannot continue indefinitely and as the FY21 comparators become progressively more challenging, together with the impact of broader macroeconomic headwinds, CentralNic is likely to see a natural moderation in organic growth for Online Marketing, and therefore for the group, over the course of FY22.

As we have noted before, Google has introduced policies to phase out support for third-party cookies, which facilitate personalised targeting for advertising by profiling users. Similarly, Apple’s privacy controls (first introduced in April 2021) restrict the use of its identifier for advertisers, which allows advertisers to track user behaviour within mobile apps and websites. Instead, app owners now need to seek explicit permission from users before being able to track third-party usage.

However, first-party cookies are not affected by Google’s policy changes. As a result, sites with high volumes of first-party data, such as Facebook, YouTube and TikTok, are likely to be less affected by Google's changes, with the impact felt most strongly by smaller publishers and advertisers.

As a result of the constriction of personalised targeting, advertisers are increasingly turning to privacy-safe contextual advertising as an alternative, such as CentralNic’s Online Marketing solution. CentralNic connects the clients on advertiser-rich platforms seeking qualified traffic to customers on user-rich social media and news platforms.

Global Industry Analysts forecasts that the global market for contextual advertising is expected to grow at a CAGR of 13% to US$335bn by 2026. This move away from personalised targeting towards contextual advertising is likely to support the growth of CentralNic’s Online Marketing division into the medium term.

Exhibit 2: Financial summary

31-December

US$’000

2019

2020

2021

2022e

2023e

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

Gross revenue

 

 

109,194

240,012

410,540

573,473

672,446

Cost of Sales

(66,419)

(164,894)

(292,041)

(416,450)

(495,733)

Net revenue

42,775

75,118

118,499

157,022

176,712

Adj. EBITDA

 

 

17,921

29,394

46,251

65,949

75,986

Normalised operating profit

 

 

16,615

27,310

42,737

61,041

70,231

Amortisation of acquired intangibles

(8,299)

(13,747)

(18,291)

(23,037)

(23,418)

Exceptionals

(8,259)

(10,529)

(7,087)

(4,000)

-

Share-based payments

(2,878)

(5,113)

(5,006)

(5,006)

(5,006)

Reported operating profit

(2,821)

(2,079)

12,353

28,998

41,807

Net Interest

(471)

(8,693)

(10,798)

(9,900)

(7,716)

Joint ventures & associates (post tax)

74

79

-

-

-

Exceptionals

-

-

-

(3,950)

(5,500)

Profit Before Tax (norm)

 

 

16,144

18,617

31,939

51,140

62,514

Profit Before Tax (reported)

 

 

(6,616)

(11,834)

1,555

15,147

28,590

Reported tax

39

975

(5,097)

(5,920)

(10,568)

Profit After Tax (norm)

16,119

19,592

26,842

40,912

46,886

Profit After Tax (reported)

(6,577)

(10,859)

(3,542)

9,227

18,022

Minority interests

64

-

-

-

-

Discontinued operations

-

-

-

-

-

Net income (normalised)

16,183

19,592

26,842

40,912

46,886

Net income (reported)

(6,513)

(10,859)

(3,542)

9,227

18,022

Basic average number of shares outstanding (m)

175,084

196,680

227,381

263,341

271,192

EPS - basic normalised (c)

 

 

9.24

9.96

11.80

15.54

17.29

EPS - diluted normalised (c)

 

 

8.97

9.57

10.69

14.46

16.12

EPS - basic reported (c)

 

 

(3.72)

(5.52)

(1.56)

3.50

6.65

Dividend (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

155.9

119.8

71.0

39.7

17.3

Gross Margin (%)

39.2

31.3

28.9

27.4

26.3

Adj. EBITDA Margin (%)

16.4

12.2

11.3

11.5

11.3

Adj. EBITDA / Net Revenue (%)

41.9

39.1

39.0

42.0

43.0

Normalised Operating Margin

15.2

11.4

10.4

10.6

10.4

BALANCE SHEET

Fixed Assets

 

 

217,544

270,578

271,830

329,313

312,848

Intangible Assets

206,055

255,716

254,169

313,693

299,033

Tangible and Right-of-use Assets

6,427

8,677

8,601

6,560

5,194

Investments & other

5,062

6,185

9,060

9,060

8,621

Current Assets

 

 

67,433

77,606

128,391

167,162

206,267

Stocks

491

1,011

895

895

2,185

Debtors

40,760

47,941

71,363

71,363

71,363

Cash & cash equivalents

26,182

28,654

56,133

94,904

132,719

Other

-

-

-

-

-

Current Liabilities

 

 

(78,767)

(96,421)

(137,129)

(130,710)

(131,242)

Creditors

(75,683)

(89,256)

(117,016)

(117,016)

(117,016)

Tax and social security

-

-

-

-

-

Short term borrowings

(3,084)

(7,165)

(13,694)

(13,694)

(14,226)

Other

-

-

(6,419)

-

-

Long Term Liabilities

 

 

(129,206)

(137,867)

(149,110)

(172,630)

(172,630)

Long term borrowings

(102,799)

(113,024)

(124,356)

(147,876)

(147,876)

Other long term liabilities

(26,407)

(24,843)

(24,754)

(24,754)

(24,754)

Net Assets

 

 

77,004

113,896

113,982

193,134

215,243

Minority interests

69

-

-

-

-

Shareholders' equity

 

 

77,073

113,896

113,982

193,134

215,243

CASH FLOW

PBT

(6,616)

(11,834)

1,555

15,147

28,590

Depreciation and amortisation

9,605

15,831

21,805

27,946

29,174

Share-based payments

2,878

5,113

5,006

5,006

5,006

Working capital

8,963

4,129

1,503

-

(1,290)

Exceptional & other

3,795

9,413

10,798

9,900

7,716

Tax

(2,309)

(1,957)

(2,230)

(5,920)

(10,568)

Net operating cash flow

 

 

16,316

20,695

38,437

52,079

58,628

Capex

(15,497)

(4,259)

(3,555)

(6,478)

(7,596)

Acquisitions/disposals

(63,840)

(40,718)

(20,063)

(78,950)

(5,500)

Net interest

(1,970)

(9,512)

(8,647)

(9,900)

(7,716)

Equity financing

2,133

34,667

-

58,500

-

Dividends

-

-

-

-

-

Other

-

-

-

-

-

Net Cash Flow

(62,858)

873

6,172

15,251

37,815

Opening net debt/(cash)

 

 

2,115

74,998

84,985

74,975

59,724

FX

(6,730)

1,117

(2,718)

-

-

Other non-cash movements

(3,295)

(11,977)

6,556

-

-

Closing net debt/(cash)

 

 

74,998

84,985

74,975

59,724

21,909

Source: Company accounts, Edison Investment Research

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This report has been commissioned by CentralNic Group and prepared and issued by Edison, in consideration of a fee payable by CentralNic Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This report has been commissioned by CentralNic Group and prepared and issued by Edison, in consideration of a fee payable by CentralNic Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Real Estate

Foxtons Group — Strong performance and market share gains

Q1 revenue growth of 8% reflects good underlying growth and M&A in lettings, as well as robust sales and mortgage markets. In sales, Foxtons has taken market share despite the y-o-y decline in revenue and Q2 has started well, with an 8% increase in the under-offer pipeline. Furthermore, additional income streams are developing well and Foxtons has identified c £8m of M&A investment so far this year, highlighting strategic progress. We retain our underlying assumptions and our 128p per share valuation.

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