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Research: TMT
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.
CentralNic Group |
51% organic revenue growth in Q122 |
Q122 trading update |
Software & comp services |
26 April 2022 |
Share price performance
Business description
Next events
Analysts
CentralNic Group is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
Y-o-y growth (%) |
Old |
New |
Change (%) |
Old |
New |
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
|
|
Research: Real Estate
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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