CentralNic Group — Cash allocated to deliver on objectives

Team Internet Group (AIM: TIG)

Last close As at 19/04/2024

GBP1.39

0.20 (0.14%)

Market capitalisation

GBP360m

More on this equity

Research: TMT

CentralNic Group — Cash allocated to deliver on objectives

CentralNic’s Q123 results showed robust revenue and profit growth, as well as a further deleveraging of its balance sheet. Its product comparison business VGL’s entry into France provides a strong organic growth opportunity, with potential to expand into other regions. The group continues to showcase its commitment to shareholder returns with its latest share buyback programme.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

CentralNic Group

Cash allocated to deliver on objectives

Q123 results

Software and comp services

16 May 2023

Price

114p

Market cap

£327m

US$1.25/£

Net debt (US$m) at 31 March 2023

49.2

Shares in issue

288.4m

Free float

49.4%

Code

CNIC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.3)

(13.6)

(11.2)

Rel (local)

(7.4)

(10.9)

(14.1)

52-week high/low

159p

111p

Business description

CentralNic Group is a global internet company that derives recurring revenue from privacy-safe, AI-based customer journeys that help online consumers make informed choices, as well as from the distribution of domain names.

Next events

H123 trading update

18 July 2023

H123 results

30 August 2023

Analysts

Max Hayes

+44 (0)20 3077 5721

Katherine Thompson

+44 (0)20 3077 5730

CentralNic Group is a research client of Edison Investment Research Limited

CentralNic’s Q123 results showed robust revenue and profit growth, as well as a further deleveraging of its balance sheet. Its product comparison business VGL’s entry into France provides a strong organic growth opportunity, with potential to expand into other regions. The group continues to showcase its commitment to shareholder returns with its latest share buyback programme.

Year
end

Revenue (US$m)

Adjusted EBITDA*
(US$m)

PBT*
(US$m)

Diluted EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/21

410.5

46.3

31.9

10.9

9.9

13.1

12/22

728.2

86.0

64.3

21.4

5.3

6.7

12/23e

833.7

94.4

80.7

20.1

4.8

7.1

12/24e

909.6

103.0

89.3

22.5

4.4

6.4

Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.

Organic growth platform built via strategic progress

CentralNic’s Q123 results were in line with our previous update, with the group reporting year-on-year increases of 24%, 15% and 15% in gross revenue, net revenue and adjusted EBITDA, respectively. Post quarter-end, management announced the first international expansion for VGL, one of its largest business lines, through meilleurs.fr in France, the second largest European market for its primary ecommerce partner Amazon. CentralNic believes that the cadence of VGL’s international expansion should now increase, providing a key growth lever (as per our March outlook) and reducing risk from country-specific exposure. Management’s recent agreement with Microsoft Bing further adds to the company’s growth potential and lowers risk by diversifying its advertiser demand pool. We maintain our headline income statement forecasts, in line with management’s reiterated guidance.

Free cash flow allocated to strategic priorities

CentralNic’s introduction of a waterfall model in its Q123 results outlines the allocation of free cash flow (FCF) to its strategic priorities, including shareholder returns, deleveraging the balance sheet and growth. The company’s commitment to a more balanced approach to capital allocation is shown by its latest £4m/US$5m share buyback programme, which is in addition to the US$4m of buybacks completed in Q123. The group’s greater focus on improving shareholder returns is reinforced by its progressive dividend policy, starting with a 1p FY22 maiden dividend (c 6% of FY22 FCF). We have increased our FY23 net debt forecast, reflecting the latest planned share buybacks and the c US$5.5m (3.6m shares) share purchase by the employee benefit trust (EBT). This equates to 0.3x our adjusted EBITDA forecast, still significantly below the group’s 2x ceiling.

Valuation: Strategic priorities could close discount

CentralNic trades at an average 65% discount on EV/sales across FY23e and FY24e, falling to an average discount of 25% on an EV/EBITDA basis. Delivering on its latest strategic priorities could act as a catalyst to stock performance.

Waterfall model, Q123 results and changes to forecasts

Waterfall model outlines free cash flow allocation

Management introduced a waterfall model in its Q123 results presentation, allocating FCF to each of the group’s strategic priorities, which we summarise below:

Progressive dividend policy: starting with a 1p FY22 maiden dividend (payable on 16 June), c 6% of FY22 FCF.

Organic growth: investing in positive net present value projects, including platform integration, content repository expansion and international growth, if all business units continue to generate positive EBITDA.

Accretive bolt-ons: more rigorously assessing potential returns on investment from an acquisition versus returns from share buybacks.

Share buybacks: remaining FCF will be used for share buybacks. Shares may also be reissued to finance acquisition opportunities.

Debt repayment: any remaining funds will be used to reduce gross debt. Debt reduction will be prioritised over share buybacks if net debt to EBITDA breaches the 2x ceiling.

Q123 results summary

In its Q123 results, the group reported gross revenue of US$194.9m, net revenue (gross profit) of US$45.8m and adjusted EBITDA of US$21.3m, year-on-year increases of 24%, 15% and 15%, respectively. Online Marketing and Online Presence saw double digit year-on-year growth in the period (28% and 14%, respectively) and strong organic progression over the trailing 12 months. We believe the quarterly falls in revenue and EBITDA were seasonal, where typically Q1 is the weakest quarter in Online Marketing and Q4 is the strongest.

Performance in Online Marketing, its largest segment, was driven by an increase in traffic volume and revenue per impression and benefited from a full month contribution from VGL. Online Presence also saw an increase in volumes and revenue per domain registration, but at a slower pace.

Exhibit 1: Q123 results summary

US$m

Q123

Q122

y-o-y change

Q422

q-o-q change

Revenue

194.9

156.6

24%

201.5

(3%)

Net revenue (gross profit)

45.8

39.9

15%

49.4

(7%)

Gross margin

23%

25%

(2%)

25%

(1%)

Adjusted EBITDA

21.3

18.5

15%

24.0

(11%)

Adjusted EBITDA margin*

47%

46%

0%

49%

(2%)

Operating profit

7.7

10.0

(23%)

(1.5)

N/A

Adjusted operating cash conversion

94%

128%

(34%)

125%

(31%)

Profit/(loss) after tax

2.9

4.0

(28%)

(8.6)

N/A

EPS basic (c)

1.1

1.5

(31%)

(3.0)

N/A

Adjusted EPS (c)

5.5

4.5

23%

0.6

827%

Net debt

49.2

61.3

(20%)

55.6

(12%)

Source: CentralNic Group. Note: *As a percentage of net revenue.

Adjusted operating cash conversion remained high, albeit lower than historical levels due to a temporary change in the working capital mix. Management believes this will return to over 100% for the full year.

Changes to forecasts

We leave our revenue and normalised profit figures for FY23 and FY24 unchanged, with our FY23 expectations aligned with management’s maintained guidance.

Using current exchange rates, we assume the company’s latest share buyback programme will increase cash outflows by c US$5m in the year. The EBT’s purchase of an additional US$5.5m of shares has resulted in an additional cash outflow of US$9.5m, reflected in our net debt forecast for the year.

Our revised average share count for the year also reflects the latest share buyback programme.

Exhibit 2: Summary of forecast changes

US$’000s

FY23e

FY24e

Year end 31 December

Old

New

Change

y-o-y

Old

Forecast

Change

y-o-y

Gross revenue

833,705

833,705

-

14%

909,572

909,572

-

9%

Net revenue

190,585

190,585

-

7%

208,116

208,116

-

9%

Adjusted EBITDA

94,416

94,416

-

10%

103,017

103,017

-

9%

Profit Before Tax (norm)

80,720

80,720

-

26%

89,308

89,307

(0.0)%

11%

Profit Before Tax (reported)

19,623

19,623

-

32%

37,211

37,210

(0.0)%

90%

Net income (normalised)

58,118

58,118

-

1%

64,302

64,301

(0.0)%

11%

Basic average number of shares outstanding (m)

289

286

289

284

EPS - basic normalised (c)

20.14

20.31

0.9%

(6)%

22.28

22.68

1.8%

12%

EPS - diluted normalised (c)

19.96

20.13

0.9%

(6)%

22.08

22.47

1.8%

12%

Revenue growth (%)

14.5

14.5

9.1

9.1

Gross margin (%)

22.9

22.9

22.9

22.9

Adjusted EBITDA margin (%)

11.3

11.3

11.3

11.3

Adjusted EBITDA/net revenue (%)

49.5

49.5

49.5

49.5

Capex

(5,667)

(5,667)

-

(13)%

(5,819)

(5,819)

-

3%

Closing net debt/(cash)

18,209

28,134

54.5%

(50)%

(32,317)

(22,313)

(31.0)%

N/A

Source: Edison Investment Research

Exhibit 3: Financial summary

$'000s

2020

2021

2022

2023e

2024

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

240,012

410,540

728,237

833,705

909,572

Cost of Sales

(164,894)

(292,041)

(550,541)

(643,120)

(701,456)

Gross Profit

75,118

118,499

177,696

190,585

208,116

EBITDA

 

 

29,394

46,251

86,024

94,416

103,017

Normalised operating profit

 

 

27,310

42,737

83,045

90,839

99,115

Amortisation of acquired intangibles

(13,747)

(18,291)

(36,399)

(36,399)

(36,399)

Exceptionals

(10,529)

(7,087)

(7,395)

0

0

Share-based payments

(5,113)

(5,006)

(5,698)

(5,698)

(5,698)

Reported operating profit

(2,079)

12,353

33,553

48,742

57,018

Net Interest

(9,834)

(10,798)

(18,736)

(10,120)

(9,808)

Joint ventures & associates (post tax)

79

0

0

0

0

Exceptionals

0

0

0

(19,000)

(10,000)

Profit Before Tax (norm)

 

 

17,555

31,939

64,309

80,720

89,307

Profit Before Tax (reported)

 

 

(11,834)

1,555

14,817

19,623

37,210

Reported tax

975

(5,097)

(16,895)

(25,023)

(27,685)

Profit After Tax (norm)

14,044

25,551

57,414

58,118

64,301

Profit After Tax (reported)

(10,859)

(3,542)

(2,078)

(5,401)

9,525

Minority interests

0

0

0

0

0

Net income (normalised)

14,044

25,551

57,414

58,118

64,301

Net income (reported)

(10,859)

(3,542)

(2,078)

(5,401)

9,525

Basic average number of shares outstanding (m)

197

227

266

286

284

EPS - basic normalised (c)

 

 

7.14

11.24

21.61

20.31

22.68

EPS - diluted normalised (c)

 

 

6.86

10.91

21.41

20.13

22.47

EPS - basic reported (c)

 

 

(5.52)

(1.56)

(0.78)

(1.89)

3.36

Dividend (c)

0.00

0.00

0.01

0.01

0.01

Revenue growth (%)

119.8

71.0

77.4

14.5

9.1

Gross Margin (%)

31.3

28.9

24.4

22.9

22.9

EBITDA Margin (%)

12.2

11.3

11.8

11.3

11.3

EBITDA/Net Revenue (%)

39.1

39.0

48.4

49.5

49.5

Normalised Operating Margin

11.4

10.4

11.4

10.9

10.9

BALANCE SHEET

Fixed Assets

 

 

270,578

271,830

365,062

351,663

329,264

Intangible Assets

255,716

254,169

347,938

334,539

312,140

Tangible Assets

8,677

8,601

7,358

7,358

7,358

Investments & other

6,185

9,060

9,766

9,766

9,766

Current Assets

 

 

77,606

128,391

193,650

232,356

287,764

Stocks

1,011

895

646

1,938

2,114

Debtors

47,941

71,363

98,231

107,354

112,139

Cash & cash equivalents

28,654

56,133

94,773

123,064

173,511

Other

0

0

0

0

0

Current Liabilities

 

 

96,421

137,129

197,712

222,866

241,570

Creditors

89,256

117,016

190,348

215,632

234,336

Tax and social security

0

0

0

0

0

Short term borrowings

5,819

18,276

5,456

5,326

5,326

Lease liabilities

1,346

1,837

1,908

1,908

1,908

Long Term Liabilities

 

 

137,867

149,110

193,667

211,822

214,501

Long term borrowings

107,820

119,251

145,872

145,872

145,872

Other long term liabilities

30,047

29,859

47,795

65,950

68,629

Net Assets

 

 

113,896

113,982

167,333

149,331

160,957

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

113,896

113,982

167,333

149,331

160,957

CASH FLOW

Op Cash Flow before WC and tax

3,997

23,360

54,195

59,598

77,511

Working capital

4,129

4,091

7,245

14,869

13,742

Exceptional & other

14,526

15,804

24,434

15,818

15,506

Tax

(1,957)

(2,230)

(8,399)

(6,868)

(25,006)

Net operating cash flow

 

 

20,695

41,025

77,475

83,417

81,754

Capex

(4,259)

(4,810)

(6,543)

(5,667)

(5,819)

Acquisitions/disposals

(37,065)

(18,344)

(81,396)

(19,000)

(10,000)

Interest paid

(9,512)

(8,695)

(7,766)

(10,120)

(9,808)

Equity financing

34,667

0

58,187

(14,494)

0

Change in borrowing

1,563

24,721

34,691

0

0

Dividends

0

0

0

(3,604)

(3,597)

Other

(4,734)

(3,700)

(30,730)

(2,241)

(2,083)

Net Cash Flow

1,355

30,197

43,918

28,291

50,446

Opening net debt/(cash)

 

 

74,998

84,985

81,394

56,555

28,134

FX

1,117

(2,718)

(5,278)

0

0

Other non-cash movements

(12,459)

(23,888)

(13,801)

130

0

Closing net debt/(cash)

 

 

84,985

81,394

56,555

28,134

(22,313)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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United Kingdom

General disclaimer and copyright

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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Industrials

AVAX — Building on strong foundations

AVAX is a leader in Greek construction, operating critical assets with long-term and visible cashflow streams, particularly in concessions. Greek economic growth should be stimulated to 2026 by the National Recovery Plan, worth over €30bn. It should help unplug the infrastructure investment deficit, a key area of focus for AVAX. FY22 results highlight the group’s progress domestically as the market improved. This more than offset the weaker international performance and group operating profit rose 78% y-o-y to €39.3m. As infrastructure investment improves in Greece, AVAX could secure an improved rating, with an attractive FY22 gross dividend yield of 7.5%. With a concessions portfolio independently valued at €130m (€0.90/share), above the recognised book value of €295m (€2.05/share), there appears to be significant potential for investors.

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