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Research: TMT
CentralNic (CNIC) delivered high double-digit organic revenue growth in the nine months to 30 September (9M22), supplemented by five acquisitions year to date. Revenues in Online Marketing, now the group’s largest business segment (78% of 9M22 revenues), were up 147% y-o-y, driving overall performance and highlighting sustained market demand for privacy-safe marketing solutions. Adjusted EBITDA as a percentage of net revenue expanded by more than 7pp y-o-y, illustrating stronger operating leverage. Improved profitability, alongside the group’s cash-generative business model, reduced leverage from 2.2x pro forma EBITDA at end FY21 to 1.2x at end Q322. Our headline forecasts are broadly unchanged due to an uncertain trading environment, although we note the potential for upside if CNIC is able to maintain current run rates.
CentralNic Group |
Deleveraged and delivering growth |
Q322 interim results |
Software and comp services |
24 November 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 (CNIC) delivered high double-digit organic revenue growth in the nine months to 30 September (9M22), supplemented by five acquisitions year to date. Revenues in Online Marketing, now the group’s largest business segment (78% of 9M22 revenues), were up 147% y-o-y, driving overall performance and highlighting sustained market demand for privacy-safe marketing solutions. Adjusted EBITDA as a percentage of net revenue expanded by more than 7pp y-o-y, illustrating stronger operating leverage. Improved profitability, alongside the group’s cash-generative business model, reduced leverage from 2.2x pro forma EBITDA at end FY21 to 1.2x at end Q322. Our headline forecasts are broadly unchanged due to an uncertain trading environment, although we note the potential for upside if CNIC is able to maintain current run rates.
Year end |
Revenue |
Adjusted |
PBT* |
Dil. EPS* |
EV/EBITDA |
P/E |
12/20 |
240.0 |
29.4 |
17.6 |
6.9 |
15.6 |
20.0 |
12/21 |
410.5 |
46.3 |
31.9 |
10.9 |
9.9 |
12.6 |
12/22e |
702.7 |
81.1 |
66.5 |
17.2 |
5.7 |
8.0 |
12/23e |
809.8 |
93.0 |
78.2 |
19.0 |
4.9 |
7.2 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
Forecasts indicate significant upside potential
In 9M22, revenues were up 88% y-o-y to $526.7m and adjusted EBITDA by 101% y-o-y to $62m. In Q3, revenue and EBITDA were up 8% q-o-q and 16% q-o-q respectively to $192m and $23.4m. Online Marketing was the primary catalyst, with 100% ytd organic growth mainly driven by CNIC’s TONIC media buying platform and overall performance benefiting from the group’s accelerated acquisition strategy. Despite positive market tailwinds, we have left our headline forecasts materially unchanged due to an uncertain macro environment. However, we believe there is significant upside potential given momentum in the group’s performance ytd and its track record of delivering growth in challenging conditions.
Well capitalised to deliver growth
The group’s growing profitability alongside a consistently high operating cash conversion strengthened CNIC’s balance sheet over 2022, with net debt/pro forma EBITDA falling from 2.2x at end FY22 to 1.2x at end Q322. Given the trend in profit growth, we believe CNIC is in a strong position to rapidly reduce the size of its net debt over the coming years and may be able to use its free cash flow for future acquisitions, rather than relying on its revolving credit facility. As highlighted in our previous note, its new debt facilities will see a significant reduction in borrowing costs: our FY23 forecasts indicate an interest coverage ratio of 10.6x.
Valuation: Trading at a discount despite consistency
Relative to its online marketing peers, CNIC has been able to achieve superior revenue and profit growth using lower leverage over FY22. Despite this, the group trades at a 69% discount to peers on FY22 and FY23 EV/EBITDA multiples.
Q322 results review
CNIC reported strong top-line growth in its Q322 results, with revenue up 88% y-o-y in 9M22 to $526.7m and up 80% y-o-y in the quarter to $192.1m. Organic y-o-y growth reached a record 66% in 9M22 and the overall group performance benefited from its accelerated acquisition strategy.
Online Marketing contributed the most to overall group performance, benefiting from sustained market demand for privacy-safe marketing solutions. The company saw not only an 83% y-o-y increase in the number of visitor sessions to 1.8 billion, but also a 60% uplift in revenue per thousand sessions to $104.1, highlighting that the quality of media buying activity has increased over the year.
Online Presence’s performance remained broadly flat, resulting from a mixture of a fall in average revenue per domain, offset by an increase in the number of processed domain registrations.
Exhibit 1: Summary of the Q322 results
US$m |
Q322 |
Q321 |
y-o-y change |
9M22 |
9M21 |
y-o-y change |
Revenue |
192.1 |
106.8 |
80% |
526.7 |
280.6 |
88% |
Online Marketing |
154.8 |
70.6 |
119% |
412.6 |
167.0 |
147% |
Online Presence |
37.3 |
36.2 |
3% |
114.1 |
113.6 |
1% |
Net revenue (gross profit) |
46.2 |
29.8 |
55% |
128.3 |
84.1 |
53% |
Adjusted EBITDA |
23.4 |
11.3 |
107% |
62.0 |
30.9 |
101% |
Net revenue/adjusted EBITDA (%) |
50.6 |
37.9 |
12.9pp |
48.3 |
36.7 |
11.6pp |
Operating profit |
13.4 |
3.4 |
294% |
35.1 |
6.5 |
440% |
Adjusted operating cash conversion |
N/M |
N/M |
N/M |
105% |
118% |
N/M |
Profit/(loss) after tax |
(0.4) |
(2.2) |
N/M |
6.5 |
(5.3) |
N/M |
EPS basic (c) |
(0.2) |
(0.9) |
N/M |
2.5 |
(2.3) |
N/M |
Adjusted EPS (c) |
2.8 |
1.8 |
58% |
11.3 |
7.1 |
60% |
Net debt |
63.4 |
78.6 |
(19%) |
63.4 |
78.6 |
(19%) |
Source: CentralNic, Edison Investment Research
Forecasts materially unchanged
We have lowered our FY22 gross margin in line with the growth of the lower-margin Online Marketing business. Our adjusted EBITDA/net revenue estimate has risen by 3.5pp to 48.5% as the group continues to strengthen its operating leverage. This increase is offset by the fall in gross margin, leaving FY22 EBITDA materially unchanged.
Our FY22 PBT and net income forecasts have been affected by a temporary increase in finance costs during 9M22. Most of the finance cost relates to both the early repayment of its previous bond and the weakness of the euro against the dollar in 2022. CNIC’s new financing facility is denominated in dollars so this should not be an ongoing concern. The initial costs of the new facility will be 2.75% above secured overnight financing rate (SOFR) (c 6.5%), significantly below Euribor plus 7% for the previous senior secured bond it replaced, which we have reflected in a 10% increase in our FY23 PBT forecast. Between 9 and 21 November 2022, CNIC entered into interest rate swap transactions to fix the variable interest component on $75m of the new $150m term loan at a blended fixed rate of 3.92%, improving visibility on its future borrowing costs.
Exhibit 2: Summary of our forecast changes
US$000s |
FY21 |
FY22 (old) |
FY22 (new) |
Change |
y-o-y growth |
FY23 (old) |
FY23 (new) |
Change |
y-o-y growth |
Gross revenue |
410,540 |
701,931 |
702,681 |
0% |
71% |
804,783 |
809,808 |
1% |
15% |
Net revenue |
118,499 |
179,938 |
167,131 |
(7)% |
41% |
199,958 |
189,831 |
(5)% |
14% |
Adjusted EBITDA |
46,251 |
80,972 |
81,059 |
0% |
75% |
92,440 |
93,017 |
1% |
15% |
Profit Before Tax (norm) |
31,939 |
65,006 |
66,476 |
2% |
108% |
77,835 |
78,182 |
0% |
18% |
Profit Before Tax (reported) |
1,555 |
27,933 |
38,485 |
38% |
2375% |
42,405 |
46,641 |
10% |
21% |
Net income (normalised) |
25,551 |
52,005 |
47,863 |
(8)% |
87% |
58,377 |
56,291 |
(4)% |
18% |
Basic av. shares outstanding (m) |
227 |
271 |
270 |
(0)% |
281 |
289 |
|||
EPS - basic normalised (c) |
11.24 |
19.18 |
17.73 |
(8)% |
58% |
20.78 |
19.50 |
(6)% |
10% |
EPS - diluted normalised (c) |
10.91 |
17.87 |
17.24 |
(4)% |
58% |
19.42 |
18.99 |
(2)% |
10% |
Revenue growth (%) |
71.0 |
71.0 |
71.2 |
14.7 |
15.2 |
||||
Gross Margin (%) |
28.9 |
25.6 |
23.8 |
24.8 |
23.4 |
||||
Adj. EBITDA margin (%) |
11.3 |
11.5 |
11.5 |
11.3 |
11.5 |
||||
Adj. EBITDA/net revenue (%) |
39.0 |
45.0 |
48.5 |
46.0 |
49.0 |
||||
Capex |
(3,555) |
(7,929) |
(4,238) |
(47)% |
19% |
(9,091) |
(4,453) |
(51)% |
5% |
Closing net debt/(cash) |
81,394 |
61,373 |
37,584 |
(39)% |
(54)% |
17,212 |
(22,109) |
(228)% |
(159)% |
Source: CentralNic, Edison Investment Research
Valuation: Discount to peers despite superior growth
CNIC has quickly established itself as one of the leading online marketing players since it entered the fray in FY19, using an accelerated acquisition programme coupled with its internal expertise. Online Marketing continues to deliver strong growth and supported CNIC’s recognition in the Financial Times’ top 250 fastest growing companies list. This makes for a compelling investment case when put alongside the company’s low customer churn, high recurring revenues, expanding margins and strengthened balance sheet. We believe there is still significant scope for growth, highlighted by the fact that our FY22 revenue forecast only makes up 11bp of the total global online marketing spend of $616bn (CNIC presentation).
Despite this, the group trades at a discount to both its online marketing and online presence peers across EV/Sales, EV/EBITDA and P/E. CNIC is trading on an EV/EBITDA of 5.7x in FY22e and 4.9x in FY23e, which is a discount of 69% compared to its online marketing peers in both FY22 and FY23. The discount closes to 60% and 61% respectively when looking at the wider peer group, which includes online marketing and online presence peers. We believe that continued organic growth and margin expansion should support a reduction in the discount to peers and a move towards the online marketing peer group valuation.
Exhibit 3: Peer group table
Year end |
Share price |
Quoted Ccy |
EV (US$m) |
Sales Growth FY1 (%) |
EBITDA margin FY1 (%) |
EV/ sales FY1(x) |
EV/ sales FY2 (x) |
EV/ EBITDA FY1 (x) |
EV/ EBITDA FY2 (x) |
P/E 1FY (x) |
P/E 2FY (x) |
|
CentralNic Group |
Dec-22 |
115.0 |
GBp |
460 |
71.2 |
11.5 |
0.7 |
0.6 |
5.7 |
4.9 |
8.0 |
7.2 |
Online marketing peers |
||||||||||||
Trade Desk |
Dec-22 |
49.5 |
USD |
23,292 |
32.0 |
41.2 |
14.7 |
12.2 |
35.8 |
33.0 |
48.4 |
45.1 |
Applovin |
Dec-22 |
14.1 |
USD |
7,019 |
0.8 |
37.6 |
2.5 |
2.5 |
6.6 |
6.3 |
NM |
39.4 |
Stroeer SE & Co |
Dec-22 |
44.3 |
EUR |
4,020 |
1.6 |
30.5 |
2.2 |
2.1 |
7.2 |
7.1 |
14.9 |
15.1 |
DoubleVerify Holdings |
Dec-22 |
25.9 |
USD |
4,048 |
35.8 |
30.7 |
9.0 |
7.2 |
29.2 |
23.2 |
95.4 |
67.6 |
Integral Ad Science |
Dec-22 |
9.9 |
USD |
1,693 |
24.2 |
30.5 |
4.2 |
3.6 |
13.8 |
11.7 |
216.4 |
68.2 |
Mean |
18.9 |
34.1 |
6.5 |
5.5 |
18.5 |
16.3 |
93.8 |
47.1 |
||||
Median |
24.2 |
30.7 |
4.2 |
3.6 |
13.8 |
11.7 |
71.9 |
45.1 |
||||
Online presence (web services) peers |
||||||||||||
Verisign |
Dec-22 |
199.3 |
USD |
21,710 |
7.2 |
68.9 |
15.3 |
14.0 |
22.1 |
19.4 |
32.4 |
27.8 |
GoDaddy |
Dec-22 |
75.4 |
USD |
14,334 |
7.2 |
24.8 |
3.5 |
3.3 |
14.1 |
13.3 |
34.0 |
27.7 |
Criteo |
Dec-22 |
26.4 |
USD |
1,026 |
0.1 |
27.3 |
1.1 |
1.0 |
4.1 |
3.7 |
10.3 |
10.3 |
Catena Media |
Dec-22 |
24.3 |
SEK |
243 |
(7.4) |
42.8 |
1.7 |
1.9 |
4.0 |
4.8 |
6.4 |
8.6 |
iomart group |
Mar-23 |
119.0 |
GBp |
210 |
(12.9) |
36.8 |
1.5 |
1.7 |
4.1 |
4.8 |
8.8 |
10.6 |
Mean |
(1.2) |
40.1 |
4.6 |
4.4 |
9.7 |
9.2 |
18.4 |
17.0 |
||||
Mean (ex-Verisign) |
(3.2) |
32.9 |
2.0 |
2.0 |
6.6 |
6.6 |
14.9 |
14.3 |
||||
Median |
0.1 |
36.8 |
1.7 |
1.9 |
4.1 |
4.8 |
10.3 |
10.6 |
||||
Total mean |
8.9 |
37.1 |
5.6 |
5.0 |
14.1 |
12.7 |
51.9 |
32.0 |
||||
Total median |
4.4 |
33.8 |
3.0 |
2.9 |
10.5 |
9.4 |
32.4 |
27.8 |
||||
Source: Refinitiv data as at 24 November 2022; CentralNic estimates are from Edison Investment Research
Exhibit 4: Financial summary
$'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
109,194 |
240,012 |
410,540 |
702,681 |
809,808 |
Cost of Sales |
(66,419) |
(164,894) |
(292,041) |
(535,550) |
(619,977) |
||
Gross Profit |
42,775 |
75,118 |
118,499 |
167,131 |
189,831 |
||
EBITDA |
|
|
17,921 |
29,394 |
46,251 |
81,059 |
93,017 |
Normalised operating profit |
|
|
16,615 |
27,310 |
42,737 |
77,128 |
88,488 |
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 |
52,088 |
62,447 |
||
Net Interest |
(3,869) |
(9,834) |
(10,798) |
(10,652) |
(10,305) |
||
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 |
66,476 |
78,182 |
Profit Before Tax (reported) |
|
|
(6,616) |
(11,834) |
1,555 |
38,485 |
46,641 |
Reported tax |
39 |
975 |
(5,097) |
(20,608) |
(24,236) |
||
Profit After Tax (norm) |
10,256 |
14,044 |
25,551 |
47,863 |
56,291 |
||
Profit After Tax (reported) |
(6,577) |
(10,859) |
(3,542) |
17,878 |
22,405 |
||
Minority interests |
64 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
10,320 |
14,044 |
25,551 |
47,863 |
56,291 |
||
Net income (reported) |
(6,513) |
(10,859) |
(3,542) |
17,878 |
22,405 |
||
Basic average number of shares outstanding (m) |
175 |
197 |
227 |
270 |
289 |
||
EPS - basic normalised (c) |
|
|
5.89 |
7.14 |
11.24 |
17.73 |
19.50 |
EPS - diluted normalised (c) |
|
|
5.72 |
6.86 |
10.91 |
17.24 |
18.99 |
EPS - basic reported (c) |
|
|
(3.72) |
(5.52) |
(1.56) |
6.62 |
7.76 |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
95.0 |
119.8 |
71.0 |
71.2 |
15.2 |
||
Gross Margin (%) |
39.2 |
31.3 |
28.9 |
23.8 |
23.4 |
||
EBITDA Margin (%) |
16.4 |
12.2 |
11.3 |
11.5 |
11.5 |
||
EBITDA/Net Revenue (%) |
41.9 |
39.1 |
39.0 |
48.5 |
49.0 |
||
Normalised Operating Margin |
15.2 |
11.4 |
10.4 |
11.0 |
10.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
217,544 |
270,578 |
271,830 |
337,745 |
322,211 |
Intangible Assets |
206,055 |
255,716 |
254,169 |
320,084 |
304,550 |
||
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 |
208,495 |
277,152 |
Stocks |
491 |
1,011 |
895 |
1,570 |
1,798 |
||
Debtors |
40,760 |
47,941 |
71,363 |
115,509 |
124,245 |
||
Cash & cash equivalents |
26,182 |
28,654 |
56,133 |
91,416 |
151,109 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
78,767 |
96,421 |
137,129 |
173,372 |
199,083 |
Creditors |
75,683 |
89,256 |
117,016 |
171,535 |
197,246 |
||
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 |
171,084 |
171,084 |
Long term borrowings |
98,967 |
107,820 |
119,251 |
129,000 |
129,000 |
||
Other long term liabilities |
30,239 |
30,047 |
29,859 |
42,084 |
42,084 |
||
Net Assets |
|
|
77,004 |
113,896 |
113,982 |
201,785 |
229,196 |
Minority interests |
(69) |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
76,935 |
113,896 |
113,982 |
201,784 |
229,195 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
2,989 |
3,997 |
23,360 |
63,450 |
72,206 |
||
Working capital |
8,963 |
4,129 |
1,503 |
9,697 |
16,748 |
||
Exceptional & other |
6,673 |
14,526 |
15,804 |
15,966 |
15,234 |
||
Tax |
(2,309) |
(1,957) |
(2,230) |
(6,182) |
(24,236) |
||
Net operating cash flow |
|
|
16,316 |
20,695 |
38,437 |
82,932 |
79,951 |
Capex |
(15,497) |
(4,259) |
(3,555) |
(4,238) |
(4,453) |
||
Acquisitions/disposals |
(60,900) |
(37,065) |
(18,344) |
(86,950) |
(5,500) |
||
Interest paid |
(1,970) |
(9,512) |
(8,647) |
(10,652) |
(10,305) |
||
Equity financing |
2,133 |
34,667 |
0 |
58,500 |
0 |
||
Change in borrowing |
101,047 |
1,563 |
26,006 |
18,892 |
0 |
||
Other |
(31,307) |
(4,734) |
(3,700) |
(23,200) |
0 |
||
Net Cash Flow |
9,822 |
1,355 |
30,197 |
35,283 |
59,693 |
||
Opening net debt/(cash) |
|
|
2,115 |
74,998 |
84,985 |
81,394 |
37,584 |
FX |
(6,730) |
1,117 |
(2,718) |
0 |
0 |
||
Other non-cash movements |
(75,975) |
(12,459) |
(23,888) |
8,527 |
0 |
||
Closing net debt/(cash) |
|
|
74,998 |
84,985 |
81,394 |
37,584 |
(22,109) |
Source: Company accounts, Edison Investment Research
|
|
Research: TMT
CI Games’ Q322 results reflect investments in its next major games release The Lords of the Fallen (TLotF) and the hiatus between releases. Its performance in the year to date has been driven by its back catalogue, resulting in year-on-year falls in revenue and profitability. However, margin compression in Q322 primarily relates to the group’s marketing push for the release of TLotF, which has been confirmed for FY23. Positive newsflow around TLotF gives us confidence in rapid sales growth and significant margin expansion in FY23. TLotF is the first in a line of new releases as part of the group’s new strategic roadmap for FY23–27, which will see an increase in the frequency of new releases and will provide greater consistency of performance year-on-year.
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