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CentralNic (CNIC) announced on 19 December that it is acquiring a portfolio of niche websites as part of its vertical integration strategy for its Online Marketing segment. The portfolio provides the company with exclusive special internet traffic to monetise and will be immediately earnings accretive. This is the latest in a multi-year series of acquisitions that has been transformative for the business, driving strong free cash flow generation. Combined with recent debt restructuring, CNIC is now in a position to start to return cash to shareholders and expects to launch its first share buyback by the end of FY22. We have upgraded our FY22 and FY23 revenue and profit forecasts to reflect these recent announcements, as well as the group’s strong trading. The acquisition follows the recent announcement of CEO Ben Crawford’s retirement from the CNIC board, with group CFO Michael Riedl appointed as his successor.
CentralNic Group |
A busy end to a momentous year |
Recent updates |
Software and comp services |
21 December 2022 |
Share price performance
Business description
Next events
Analysts
CentralNic Group is a research client of Edison Investment Research Limited |
CentralNic (CNIC) announced on 19 December that it is acquiring a portfolio of niche websites as part of its vertical integration strategy for its Online Marketing segment. The portfolio provides the company with exclusive special internet traffic to monetise and will be immediately earnings accretive. This is the latest in a multi-year series of acquisitions that has been transformative for the business, driving strong free cash flow generation. Combined with recent debt restructuring, CNIC is now in a position to start to return cash to shareholders and expects to launch its first share buyback by the end of FY22. We have upgraded our FY22 and FY23 revenue and profit forecasts to reflect these recent announcements, as well as the group’s strong trading. The acquisition follows the recent announcement of CEO Ben Crawford’s retirement from the CNIC board, with group CFO Michael Riedl appointed as his successor.
Year end |
Revenue |
Adjusted EBITDA* ($m) |
PBT* |
Dil. EPS |
EV/EBITDA |
P/E |
12/20 |
240.0 |
29.4 |
17.6 |
6.9 |
19.7 |
26.0 |
12/21 |
410.5 |
46.3 |
31.9 |
10.9 |
12.5 |
16.3 |
12/22e |
708.2 |
83.6 |
69.0 |
17.9 |
6.9 |
10.0 |
12/23e |
811.0 |
94.4 |
79.6 |
19.3 |
6.1 |
9.2 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
Upgrades to estimates
CNIC’s trading has been robust through Q422 and it expects a full year outcome at least in line with the upper end of market expectations (revenue $701.0–709.6m, EBITDA $80.0–84.1m). We have upgraded our FY22 revenue and EBITDA forecasts to $708.2m and $83.6m, respectively. In FY23, we have raised our revenue and EBITDA forecasts to $811.0m and $94.4m, respectively, reflecting management’s guidance for its latest website portfolio acquisition. On a standalone basis, management expects the websites to generate annualised revenue and EBITDA of at least $1.9m and $1.4m, respectively, post acquisition. The consideration consists of $5.2m in cash and assumed working capital liabilities in an asset deal from multiple sellers, which will be financed from available liquidity.
Strong trading supports share buyback
With an improved net debt position and major strategic acquisitions completed, the company has decided to allocate some of the strong free cash flow generated to a maiden share buyback by year-end. Management plans to review cash flow deployment within the business and expects to have a greater focus on returns to shareholders versus mergers and acquisitions.
Valuation: Material discount despite upgrades
Relative to its online marketing peers, CNIC has been able to achieve superior revenue and profit growth using lower leverage over FY22. While the discount has slightly reduced since we last wrote, the group still trades at a c 59% discount to peers on FY22 and FY23 EV/EBITDA multiples.
Changes to estimates and management update
On 12 December, CentralNic provided a brief trading update for Q422, confirming that trading has remained robust and that management now expects a full year outcome at least in line with the upper end of market consensus (revenue $701.0–709.6m, EBITDA $80.0–84.1m). We have upgraded our FY22 revenue forecast by 0.8% to $708.2m and EBITDA forecast by 3.1% to $83.6m. We have also revised our year-end net debt figure, reflecting both its balance sheet position at the end of Q322 and the consideration for its latest acquisition ($5.2m cash and assumed working capital liabilities).
For FY23, our expectations for organic growth are unchanged, but we have increased our revenue and profit expectations on the back of the latest acquisition. On a standalone basis, management expects the websites to generate annualised revenue and EBITDA of at least $1.9m and $1.4m, respectively, post acquisition. As CNIC is already monetising part of the websites’ traffic, this translates into c $1.2m of additional revenue, c $0.5m of reduced cost of goods sold and c $1.4m of EBITDA in FY23. This is in line with our updated forecasts.
Exhibit 1: Changes to estimates
US$'000s |
2022e |
2023e |
||||||
Old |
New |
Change (%) |
y-o-y (%) |
Old |
New |
Change (%) |
y-o-y (%) |
|
Gross revenue |
702,681 |
708,193 |
0.8 |
73 |
809,808 |
811,022 |
0.1 |
15 |
Net revenue |
167,131 |
172,303 |
3.1 |
45 |
189,831 |
190,550 |
0.4 |
11 |
Adjusted EBITDA |
81,059 |
83,567 |
3.1 |
81 |
93,017 |
94,416 |
1.5 |
13 |
Profit Before Tax (normalised) |
66,476 |
68,953 |
3.7 |
116 |
78,182 |
79,570 |
1.8 |
15 |
Profit Before Tax (reported) |
38,485 |
40,963 |
6.4 |
2534 |
46,641 |
48,030 |
3.0 |
17 |
Net income (normalised) |
47,863 |
49,646 |
3.7 |
94 |
56,291 |
57,291 |
1.8 |
15 |
Basic ave. no. of shares outstanding (m) |
270 |
270 |
- |
289 |
289 |
- |
||
EPS - basic normalised (c) |
17.73 |
18.39 |
3.7 |
64 |
19.50 |
19.85 |
1.8 |
8 |
EPS - diluted normalised (c) |
17.24 |
17.88 |
3.7 |
64 |
18.99 |
19.33 |
1.8 |
8 |
Revenue growth (%) |
71.2 |
72.5 |
15.2 |
14.5 |
||||
Gross margin (%) |
23.8 |
24.3 |
23.4 |
23.5 |
||||
Adjusted EBITDA margin (%) |
11.5 |
11.8 |
11.5 |
11.6 |
||||
Adjusted EBITDA/net revenue (%) |
48.5 |
48.5 |
49.0 |
49.5 |
||||
Capex |
(4,238) |
(5,416) |
27.8 |
13 |
(4,453) |
(5,622) |
26.3 |
4 |
Closing net debt/(cash) |
37,584 |
62,655 |
66.7 |
(23) |
(22,109) |
2,846 |
N/A |
(95) |
Source: Edison Investment Research
Experienced CFO steps up to CEO role
On 12 December, CNIC announced that group CEO Ben Crawford had retired from the board and group CFO Michael Riedl had been promoted to the role of group CEO with immediate effect. Mr Riedl became group CFO in 2019 following CNIC’s acquisition of KeyDrive, where he had been CFO since 2011. Current group financial director William ‘Billy’ Green has been promoted to the group CFO role, initially in a non-board capacity, but with the expectation that he will join the board in due course
Exhibit 2: Financial summary
$'k |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
109,194 |
240,012 |
410,540 |
708,193 |
811,022 |
Cost of Sales |
(66,419) |
(164,894) |
(292,041) |
(535,890) |
(620,471) |
||
Gross Profit |
42,775 |
75,118 |
118,499 |
172,303 |
190,550 |
||
EBITDA |
|
|
17,921 |
29,394 |
46,251 |
83,567 |
94,416 |
Normalised operating profit |
|
|
16,615 |
27,310 |
42,737 |
79,606 |
89,880 |
Amortisation of acquired intangibles |
(8,299) |
(13,747) |
(18,291) |
(21,035) |
(21,035) |
||
Exceptionals |
(8,259) |
(10,529) |
(7,087) |
1,000 |
0 |
||
Share-based payments |
(2,878) |
(5,113) |
(5,006) |
(5,006) |
(5,006) |
||
Reported operating profit |
(2,821) |
(2,079) |
12,353 |
54,565 |
63,839 |
||
Net Interest |
(3,869) |
(9,834) |
(10,798) |
(10,652) |
(10,309) |
||
Joint ventures & associates (post tax) |
74 |
79 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
(2,950) |
(5,500) |
||
Profit Before Tax (norm) |
|
|
12,820 |
17,555 |
31,939 |
68,953 |
79,570 |
Profit Before Tax (reported) |
|
|
(6,616) |
(11,834) |
1,555 |
40,963 |
48,030 |
Reported tax |
39 |
975 |
(5,097) |
(21,376) |
(24,667) |
||
Profit After Tax (norm) |
10,256 |
14,044 |
25,551 |
49,646 |
57,291 |
||
Profit After Tax (reported) |
(6,577) |
(10,859) |
(3,542) |
19,587 |
23,363 |
||
Minority interests |
64 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
10,320 |
14,044 |
25,551 |
49,646 |
57,291 |
||
Net income (reported) |
(6,513) |
(10,859) |
(3,542) |
19,587 |
23,363 |
||
Basic average number of shares outstanding (m) |
175 |
175 |
197 |
227 |
270 |
||
EPS - basic normalised (c) |
|
|
5.89 |
7.14 |
11.24 |
18.39 |
19.85 |
EPS - diluted normalised (c) |
|
|
5.72 |
6.86 |
10.91 |
17.88 |
19.33 |
EPS - basic reported (c) |
|
|
(3.72) |
(5.52) |
(1.56) |
7.26 |
8.09 |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
95.0 |
119.8 |
71.0 |
72.5 |
14.5 |
||
Gross Margin (%) |
39.2 |
31.3 |
28.9 |
24.3 |
23.5 |
||
EBITDA Margin (%) |
16.4 |
12.2 |
11.3 |
11.8 |
11.6 |
||
EBITDA/Net Revenue (%) |
41.9 |
39.1 |
39.0 |
48.5 |
49.5 |
||
Normalised Operating Margin |
15.2 |
11.4 |
10.4 |
11.2 |
11.1 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
217,544 |
270,578 |
271,830 |
346,945 |
335,411 |
Intangible Assets |
206,055 |
255,716 |
254,169 |
329,284 |
317,750 |
||
Tangible Assets |
6,427 |
8,677 |
8,601 |
8,601 |
8,601 |
||
Investments & other |
5,062 |
6,185 |
9,060 |
9,060 |
9,060 |
||
Current Assets |
|
|
67,433 |
77,606 |
128,391 |
187,241 |
261,272 |
Stocks |
491 |
1,011 |
895 |
1,571 |
1,800 |
||
Debtors |
40,760 |
47,941 |
71,363 |
119,326 |
133,319 |
||
Cash & cash equivalents |
26,182 |
28,654 |
56,133 |
66,345 |
126,154 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
78,767 |
96,421 |
137,129 |
170,656 |
195,006 |
Creditors |
75,683 |
89,256 |
117,016 |
168,819 |
193,169 |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
||
Short term borrowings |
2,213 |
5,819 |
18,276 |
0 |
0 |
||
Lease liabilities |
871 |
1,346 |
1,837 |
1,837 |
1,837 |
||
Long Term Liabilities |
|
|
129,206 |
137,867 |
149,110 |
167,536 |
177,314 |
Long term borrowings |
98,967 |
107,820 |
119,251 |
129,000 |
129,000 |
||
Other long term liabilities |
30,239 |
30,047 |
29,859 |
38,536 |
48,314 |
||
Net Assets |
|
|
77,004 |
113,896 |
113,982 |
195,994 |
224,363 |
Minority interests |
(69) |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
76,935 |
113,896 |
113,982 |
195,994 |
224,363 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
2,989 |
3,997 |
23,360 |
65,959 |
73,601 |
||
Working capital |
8,963 |
4,129 |
4,091 |
3,165 |
10,128 |
||
Exceptional & other |
6,673 |
14,526 |
15,804 |
15,658 |
15,315 |
||
Tax |
(2,309) |
(1,957) |
(2,230) |
(12,698) |
(14,889) |
||
Net operating cash flow |
|
|
16,316 |
20,695 |
41,025 |
72,083 |
84,155 |
Capex |
(15,497) |
(4,259) |
(4,810) |
(5,416) |
(5,622) |
||
Acquisitions/disposals |
(60,900) |
(37,065) |
(18,344) |
(92,150) |
(5,500) |
||
Interest paid |
(1,970) |
(9,512) |
(8,695) |
(10,652) |
(10,309) |
||
Equity financing |
2,133 |
34,667 |
0 |
58,500 |
0 |
||
Change in borrowing |
101,047 |
1,563 |
24,721 |
18,892 |
0 |
||
Other |
(31,307) |
(4,734) |
(3,700) |
(24,445) |
(2,914) |
||
Net Cash Flow |
9,822 |
1,355 |
30,197 |
16,812 |
59,809 |
||
Opening net debt/(cash) |
|
|
2,115 |
74,998 |
84,985 |
81,394 |
62,655 |
FX |
(6,730) |
1,117 |
(2,718) |
(6,600) |
0 |
||
Other non-cash movements |
(75,975) |
(12,459) |
(23,888) |
8,527 |
0 |
||
Closing net debt/(cash) |
|
|
74,998 |
84,985 |
81,394 |
62,655 |
2,846 |
Source: CentralNic, Edison Investment Research
|
|
Research: Healthcare
As expected, Basilea continues to derive value from its oncology exit as it has received a transition-related milestone payment of US$4m (CHF3.7m) from its licensing partner SillaJen triggered by the progression of the oncology asset BAL0891 towards Phase I clinical studies. The company had previously received an upfront payment of US$10m (CHF9.3m) following closure of the deal with SillaJen in September 2022. As part of the licensing agreement, Basilea is set to receive potential future performance-based milestone payments of up to c US$320m (c CHF297m) and is also entitled to tiered royalties on net sales, which will range from single- to double-digit percentages. Basilea remains responsible for making milestone and royalty payments to the licensor, NTRC, for BAL0891. We value Basilea at CHF921.7m or CHF77.8/share (previously CHF903.5m or CHF76.3/share).
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