Currency in GBP
Last close As at 02/06/2023
GBP1.13
▲ 0.20 (0.18%)
Market capitalisation
GBP321m
Research: TMT
CentralNic provides domain name services and online marketing, focused on consolidating a highly fragmented global market. It offers a broad range of internet services, including reseller services, to corporates and SMEs (the online presence segment), as well as online marketing (the group’s second segment) to domain investors. Ahead of Q421, its seasonally strongest quarter, CentralNic reported 9M21 trading ahead of market expectations, with organic growth of 29%, driven by the group’s investment programme. Based on this strong trading, we raised our FY21 revenue estimate by 10% to US$384m, with adjusted EBITDA rising to US$43m, an 11.2% margin. CentralNic has recorded five-year revenue CAGR to FY20 of 78%. Further M&A should be expected.
CentralNic Group |
Growth at an attractive valuation
Software & comp services |
Deutsches Eigenkapitalforum 2021
1 November 2021 |
Share price graph Share details
Business description
Bull
Bear ■ ■
Analyst
CentralNic Group is a research client of Edison Investment Research Limited |
CentralNic provides domain name services and online marketing, focused on consolidating a highly fragmented global market. It offers a broad range of internet services, including reseller services, to corporates and SMEs (the online presence segment), as well as online marketing (the group’s second segment) to domain investors. Ahead of Q421, its seasonally strongest quarter, CentralNic reported 9M21 trading ahead of market expectations, with organic growth of 29%, driven by the group’s investment programme. Based on this strong trading, we raised our FY21 revenue estimate by 10% to US$384m, with adjusted EBITDA rising to US$43m, an 11.2% margin. CentralNic has recorded five-year revenue CAGR to FY20 of 78%. Further M&A should be expected.
A business model with attractive dynamics
CentralNic’s Online Presence division operates in a growing low-value, high-volume, subscription-based technology-enabled global market (a US$30bn addressable market, 6% growth). Online Marketing operates in a US$400bn market, with 20%+ growth. Both divisions offer attractive cash flows, with operating cash conversion of c 100%. Customers tend to be sticky, and become stickier the longer they remain clients (95%+ recurring revenues). CentralNic operates a leveraged ‘buy and build’ model, with organic growth supplemented by M&A.
Resilient, M&A-driven business model
CentralNic completed one major acquisition in FY20, Codewise (Monetisation), which follows four acquisitions in FY19: TPP Wholesale, Hexonet and Ideegeo (Indirect), and Team Internet (Monetisation). In FY21, CentralNic has already completed the US$3.7m (plus a US$0.7m earn-out) acquisition of SafeBrands (Direct), a French-based brand protection software provider, and Wando Internet Solutions (Monetisation), for US$13.0m in cash (including a US$6.5m earn-out). With 9M21 net debt of US$79m, CentralNic retains capacity for further M&A.
Valuation: Discount despite market-leading growth
With 59% expected sales growth in FY21, CentralNic offers some of the strongest growth among its peers, yet trades on P/E multiples of 16.0x in FY21e and 15.1x in FY22e. Whether we compare it to web services or online marketing, CentralNic continues to trade at a material discount to its peers. The web services peer group trades at average P/Es of 25x for FY21 and 19x for FY22. CentralNic’s discount to its online marketing peers (FY21: 33x, FY22: 25x) is more marked.
Edison estimates
Note: *Excludes impact of share-based payments, share option expense, foreign exchange charges and non-core operating costs. |
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Research: TMT
Ahead of CentralNic’s seasonally strongest quarter, it has reported trading for the first nine months of FY21 (9M21) ahead of market expectations. Noting the acceleration of organic growth to 29% for 9M21, driven by the group’s investment programme, management expects to trade comfortably at or above the upper end of market expectations for the year for both revenue and adjusted EBITDA (expectations disclosed as US$355.3m and US$42.0m respectively). Accordingly, we have raised our FY21 revenue estimate by 10% to US$384m, with adjusted EBITDA rising to US$43m, an 11.2% margin, with these changes flowing through to our estimates for FY22/23. Adjusted operating cash conversion was in excess of 100%, meaning that net debt fell to US$79m as at 30 September 2021.
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