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Last close As at 26/05/2023
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GBP325m
Research: TMT
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.
CentralNic Group |
Cash allocated to deliver on objectives |
Q123 results |
Software and comp services |
16 May 2023 |
Share price performance
Business description
Next events
Analysts
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 |
Revenue (US$m) |
Adjusted EBITDA* |
PBT* |
Diluted EPS* |
EV/EBITDA |
P/E |
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
|
|
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