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Last close As at 26/05/2023
GBP1.14
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GBP325m
Research: TMT
CentralNic’s Q123 trading update confirms management is delivering on its strategy of robust organic growth, coupled with strong cash generation, which has improved shareholder returns and further deleveraged its balance sheet. The group is confident that it is trading at least in line with current market consensus for FY23 and we maintain our forecasts, which are slightly ahead of consensus. CentralNic’s latest agreement with Microsoft Bing in Online Marketing lowers the group’s execution risk by diversifying its advertiser demand pool and adds to its growth potential.
CentralNic Group |
FY23 outlook maintained after record Q1 |
Q123 trading update |
Software and comp services |
27 April 2023 |
Share price performance
Business description
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Analysts
CentralNic Group is a research client of Edison Investment Research Limited |
CentralNic’s Q123 trading update confirms management is delivering on its strategy of robust organic growth, coupled with strong cash generation, which has improved shareholder returns and further deleveraged its balance sheet. The group is confident that it is trading at least in line with current market consensus for FY23 and we maintain our forecasts, which are slightly ahead of consensus. CentralNic’s latest agreement with Microsoft Bing in Online Marketing lowers the group’s execution risk by diversifying its advertiser demand pool and adds to its growth potential.
Year end |
Revenue (US$m) |
Adjusted EBITDA* |
PBT* |
Diluted EPS* |
EV/EBITDA |
P/E |
12/21 |
410.5 |
46.3 |
31.9 |
10.9 |
10.3 |
13.6 |
12/22 |
728.2 |
86.0 |
64.3 |
21.4 |
5.5 |
6.9 |
12/23e |
833.7 |
94.4 |
80.7 |
20.0 |
5.0 |
7.4 |
12/24e |
909.6 |
103.0 |
89.3 |
22.1 |
4.6 |
6.7 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
Q123 update: Delivering on updated strategy
CentralNic’s latest trading update shows that management expects to report 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. The company is delivering on its updated strategy, with organic pro-forma revenue for the trailing 12 months to 31 March up 45% and higher cash levels being used for improved shareholder returns and further deleveraging its balance sheet. In addition to its completed US$4.8m share buyback programme, shareholders voted in favour of its 1p inaugural dividend (c 1% yield) at its annual general meeting.
Microsoft contract bolsters robust outlook
Management is confident that the group is trading at least in line with market consensus for FY23, indicating gross revenue growth of 10% y-o-y to US$801m and adjusted EBITDA of US$93m. We leave our forecasts unchanged, which are slightly ahead of market consensus, suggesting top-line growth of 14% and adjusted EBITDA of US$94.4m. With CentralNic now at critical mass and with operating leverage, we are confident the group can deliver further margin expansion in the year, where we forecast a 110bp y-o-y increase in net revenue/EBITDA margin to 49.5%, 8.1% ahead of its online marketing peer group. Its recent agreement with Microsoft Bing should enhance its existing artificial intelligence capabilities by leveraging ChatGPT and expand its access to advertisers by adding to its demand pool, diversifying revenue streams and lowering risk. CentralNic also announced that Marie Holive has joined its board as a non-executive director. She has extensive experience in global media markets, including nine years as CFO at NBC Universal.
Valuation: Robust returns at an attractive valuation
CentralNic trades at an average 58% discount on EV/sales across FY23e and FY24e, falling to an average discount of 29% on an EV/EBITDA basis, indicating upside potential alongside higher shareholder returns than historical levels.
Exhibit 1: Financial summary
$'k |
2020 |
2021 |
2022 |
2023e |
2024e |
||
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) |
(9,807) |
||
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 |
89,308 |
Profit Before Tax (reported) |
|
|
(11,834) |
1,555 |
14,817 |
19,623 |
37,211 |
Reported tax |
975 |
(5,097) |
(16,895) |
(25,023) |
(27,686) |
||
Profit After Tax (norm) |
14,044 |
25,551 |
57,414 |
58,118 |
64,302 |
||
Profit After Tax (reported) |
(10,859) |
(3,542) |
(2,078) |
(5,401) |
9,526 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
14,044 |
25,551 |
57,414 |
58,118 |
64,302 |
||
Net income (reported) |
(10,859) |
(3,542) |
(2,078) |
(5,401) |
9,526 |
||
Basic average number of shares outstanding (m) |
197 |
227 |
266 |
289 |
289 |
||
EPS - basic normalised (c) |
|
|
7.14 |
11.24 |
21.61 |
20.14 |
22.28 |
EPS - diluted normalised (c) |
|
|
6.86 |
10.91 |
21.41 |
19.96 |
22.08 |
EPS - basic reported (c) |
|
|
(5.52) |
(1.56) |
(0.78) |
(1.87) |
3.30 |
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 |
242,281 |
297,768 |
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 |
132,989 |
183,515 |
||
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 |
159,255 |
170,961 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
113,896 |
113,982 |
167,333 |
159,255 |
170,961 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
3,997 |
23,360 |
54,195 |
59,598 |
77,513 |
||
Working capital |
4,129 |
4,091 |
7,245 |
14,869 |
13,742 |
||
Exceptional & other |
14,526 |
15,804 |
24,434 |
15,818 |
15,505 |
||
Tax |
(1,957) |
(2,230) |
(8,399) |
(6,868) |
(25,006) |
||
Net operating cash flow |
|
|
20,695 |
41,025 |
77,475 |
83,417 |
81,753 |
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) |
(9,807) |
||
Equity financing |
34,667 |
0 |
58,187 |
(4,680) |
0 |
||
Change in borrowing |
1,563 |
24,721 |
34,691 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
(3,494) |
(3,518) |
||
Other |
(4,734) |
(3,700) |
(30,730) |
(2,241) |
(2,083) |
||
Net Cash Flow |
1,355 |
30,197 |
43,918 |
38,216 |
50,526 |
||
Opening net debt/(cash) |
|
|
74,998 |
84,985 |
81,394 |
56,555 |
18,209 |
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 |
18,209 |
(32,317) |
Source: Edison Investment Research, company accounts
|
|
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