CentralNic Group — Organic growth continues to accelerate

Team Internet Group (AIM: TIG)

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Research: TMT

CentralNic Group — Organic growth continues to accelerate

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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Written by

TMT

CentralNic Group

Organic growth continues to accelerate

Q3 trading update

Software & comp services

1 November 2021

Price

135p

Market cap

£309m

£1.37/US$

Net debt (US$m) at 30 September 2021

79

Shares in issue (excluding 22.4m shares held in employee benefit trust)

228.8m

Free float

49%

Code

CNIC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.6

39.2

81.8

Rel (local)

20.0

36.7

38.8

52-week high/low

137p

73p

Business description

CentralNic Group is a leading global domain name services provider, operating through two divisions: Online Presence (Reseller, Corporate, and SME); and Online Marketing. Services include domain name reselling, hosting, website building, security certification and website monetisation.

Next events

Q321 interim report

22 November 2021

FY21 trading update

January 2022

FY21 results

April 2022

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

CentralNic Group is a research client of Edison Investment Research Limited

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.

Year end

Revenue (US$m)

Adjusted EBITDA* (US$m)

PBT*
(US$m)

EPS**
(c)

DPS
(c)

P/E
(x)

12/19

109.2

17.9

16.1

9.24

0.0

20.0

12/20

241.2

30.6

19.8

10.57

0.0

17.5

12/21e

384.1

43.0

29.7

11.57

0.0

16.0

12/22e

420.2

48.0

33.6

12.24

0.0

15.1

Note: *Excludes impact of share-based payments, share option expense, foreign exchange charges and non-core operating costs. **FY21e and FY22e EPS figures reflect 228.8m voting shares in issue.

9M21: 29% organic growth, up from 20% for H121

In its Q321 trading statement, CentralNic reported a further acceleration of organic growth to 29% for 9M21 (H121: 20% y-o-y organic growth), driven by its investment programme. As a result, the company expects to report 9M21 revenue of at least US$280m (66% y-o-y growth) and adjusted EBITDA of at least US$32m (45% y-o-y growth) versus 9M20 figures of US$168.5m and US$22.1m, respectively. This indicates an adjusted EBITDA margin of 11.4%, slightly below the 11.7% for H121, likely due to growth continuing to be led by the lower-margin Online Marketing over Online Presence. With adjusted operating cash conversion in excess of 100%, cash at period end rose to US$54m (H121: US$39.5m), with net debt falling to US$79m (H121: US$83.8m).

Upward revision to revenues and adjusted EBITDA

Assuming Q421 will be at least in line with Q321, we have raised our FY21 revenue estimate by c 10% to US$384m, with adjusted EBITDA rising 5% to US$43m, an adjusted EBITDA margin of 11.2%. These changes affect our estimates for FY22 (US$420m, US$48m) and FY23 (US$454m, US$52m) with an 11.4% adjusted EBITDA margin for both, but all other assumptions remain unchanged.

Valuation: Discount despite market-leading growth

Following our upgrade, we estimate that CentralNic will deliver 59% sales growth in FY21. It demonstrates some of the strongest growth in its peer group and yet trades on P/E multiples of 16.0x in FY21e and 15.1x in FY22e. Whether we compare it to web services or (European or US) 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.

Revised estimates: Upgrade due to organic growth

Following the continued strong year-on-year organic growth that CentralNic has delivered throughout the year (Q121: 16% H121: 20%, 9M21: 29%), we have again upgraded our estimates, with our revised revenue estimates for FY21 now 28% higher than at the time of the SafeBrands acquisition in January 2021 (US$299.3m).

Revenues: we have revised our FY21 revenue upwards by c 10% to US$384m, by conservatively assuming that the revenue seen in Q3 is repeated in Q4 in what is CentralNic’s seasonally strongest quarter. We have also factored in the White & Case acquisition (annualised FY22 revenue contribution of US$2m, US$1.5m EBITDA) completed on 1 October 2021. Our prior revenue growth assumptions remain in place for FY22 and FY23, implying revenues of US$420m and US$454m respectively.

Adjusted EBITDA and adjusted EBITDA margins: 9M21 adjusted EBITDA margins fell to 11.4% from 11.7%. We assume FY21 adjusted EBITDA margins of 11.2%, delivering adjusted EBITDA of US$43m, 5% higher than our prior estimate. For FY22 and FY23, we assume adjusted EBITDA of US$48m (11.4% margin) and US$52m (11.4% margin) respectively, benefiting from the higher revenue forecasts together with a slight lift in margins over FY21e due to our anticipated improvements in operating leverage as opposed to a change in business mix.

Shares in issue: following the share and option awards announced in June 2021, we assume that CentralNic has 228.8m voting shares, with 22.4m non-voting shares held by the employee benefit trust (EBT), together making 251.2m fully diluted shares in issue.

Exhibit 1: Edison’s revised estimates for FY21e, FY22e and FY23e

US$’000s

Actual

2021e

2022e

2023e

2020

Old

New

Change

Old

New

Change

Old

New

Change

Gross revenue

241,212

350,133

384,127

10%

378,848

420,183

11%

409,156

453,797

11%

Net revenues

76,318

112,042

122,921

10%

125,020

138,660

11%

135,021

149,753

11%

Adjusted EBITDA

30,594

41,086

43,022

5%

45,213

48,006

6%

48,830

51,846

6%

Normalised operating profit

28,510

37,686

39,622

5%

41,534

44,287

7%

44,857

47,830

7%

Profit before tax (norm)

19,817

27,759

29,696

7%

30,882

33,635

9%

34,208

37,181

9%

Profit before tax (reported)

(9,395)

6,553

8,471

11,464

14,174

18,508

21,413

Reported tax

975

(2,644)

(3,315)

(4,624)

(5,437)

(5,552)

(6,424)

Net income (normalised)

20,792

25,116

26,381

5%

26,258

28,198

7%

28,656

30,757

7%

EPS - basic normalised (c)

10.57

11.01

11.57

5%

11.40

12.24

7%

12.44

13.35

7%

EPS - diluted normalised (c)

10.16

10.03

10.53

5%

10.39

11.16

7%

11.34

12.17

7%

Revenue growth (%)

120.9

45.2

59.2

8.2

9.4

8.0

8.0

Gross margin (%)

31.6

32.0

32.0

33.0

33.0

33.0

33.0

Adjusted EBITDA margin (%)

12.7

11.7

11.2

11.9

11.4

11.9

11.4

Normalised operating margin (%)

11.8

10.8

10.3

11.0

10.5

11.0

10.5

Capex

(4,259)

(3,955)

(4,339)

10%

(4,280)

(4,747)

11%

(4,622)

(5,126)

11%

Closing net debt/(cash)

84,985

80,025

79,144

(1)%

62,267

59,873

(4)%

34,579

30,690

(11)%

Source: CentralNic accounts, Edison Investment Research

Exhibit 2: Financial summary

US$'000

2019

2020

2021e

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

109,194

241,212

384,127

420,183

453,797

Cost of Sales

(66,419)

(164,894)

(261,207)

(281,522)

(304,044)

Gross Profit

42,775

76,318

122,921

138,660

149,753

Adj. EBITDA

 

 

17,921

30,594

43,022

48,006

51,846

Normalised operating profit

 

 

16,615

28,510

39,622

44,287

47,830

Amortisation of acquired intangibles

(8,299)

(12,508)

(14,424)

(15,511)

(15,768)

Exceptionals

(8,259)

(10,529)

(4,100)

-

-

Share-based payments

(2,878)

(5,113)

(1,700)

-

-

Reported operating profit

(2,821)

360

19,398

28,776

32,062

Net Interest

(471)

(8,693)

(9,927)

(10,652)

(10,649)

Joint ventures & associates (post tax)

74

79

-

-

-

Exceptionals

-

-

(1,000)

(3,950)

-

Profit Before Tax (norm)

 

 

16,144

19,817

29,696

33,635

37,181

Profit Before Tax (reported)

 

 

(6,616)

(9,395)

8,471

14,174

21,413

Reported tax

39

975

(3,315)

(5,437)

(6,424)

Profit After Tax (norm)

16,119

20,792

26,381

28,198

30,757

Profit After Tax (reported)

(6,577)

(8,420)

5,156

8,737

14,989

Minority interests

64

-

-

-

-

Discontinued operations

-

-

-

-

-

Net income (normalised)

16,183

20,792

26,381

28,198

30,757

Net income (reported)

(6,513)

(8,420)

5,156

8,737

14,989

Basic average number of shares outstanding (m)

175,084

196,680

228,080

230,381

230,381

EPS - basic normalised (c)

 

 

9.24

10.57

11.57

12.24

13.35

EPS - diluted normalised (c)

 

 

8.97

10.16

10.53

11.16

12.17

CNIC Adj EPS basic (c)

 

 

9.24

10.57

11.57

12.24

13.35

EPS - basic reported (c)

 

 

(3.72)

(4.28)

2.26

3.79

6.51

Dividend (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

155.9

120.9

59.2

9.4

8.0

Gross Margin (%)

39.2

31.6

32.0

33.0

33.0

Adj. EBITDA Margin (%)

16.4

12.7

11.2

11.4

11.4

Normalised Operating Margin

15.2

11.8

10.3

10.5

10.5

BALANCE SHEET

Fixed Assets

 

 

217,544

271,817

271,132

260,599

242,633

Intangible Assets

206,055

256,955

257,749

248,834

229,860

Tangible and Right-of-use Assets

6,427

8,677

7,198

5,579

7,250

Investments & other

5,062

6,185

6,185

6,185

5,524

Current Assets

 

 

67,433

77,606

101,447

120,718

150,365

Stocks

491

1,011

1,011

1,011

1,475

Debtors

40,760

47,941

47,941

47,941

47,941

Cash & cash equivalents

26,182

28,654

52,495

71,766

100,949

Other

-

-

-

-

-

Current Liabilities

 

 

(78,767)

(94,421)

(94,421)

(94,421)

(94,529)

Creditors

(75,683)

(87,256)

(87,256)

(87,256)

(87,256)

Tax and social security

-

-

-

-

-

Short term borrowings

(3,084)

(7,165)

(7,165)

(7,165)

(7,273)

Other

-

-

-

-

-

Long Term Liabilities

 

 

(129,206)

(137,867)

(155,867)

(155,867)

(155,867)

Long term borrowings

(102,799)

(113,024)

(131,024)

(131,024)

(131,024)

Other long term liabilities

(26,407)

(24,843)

(24,843)

(24,843)

(24,843)

Net Assets

 

 

77,004

117,135

122,291

131,028

142,603

Minority interests

69

-

-

-

-

Shareholders' equity

 

 

77,073

117,135

122,291

131,028

142,603

CASH FLOW

PBT

(6,616)

(9,395)

8,471

14,174

21,413

Depreciation and amortisation

9,605

14,592

17,824

19,230

19,785

Share-based payments

2,878

5,113

-

-

-

Working capital

8,963

309

-

-

(464)

Exceptional & other

3,795

9,413

9,927

10,652

10,649

Tax

(2,309)

(1,957)

(3,315)

(5,437)

(6,424)

Net operating cash flow

 

 

16,316

18,075

32,907

38,619

44,959

Capex

(15,497)

(4,259)

(4,339)

(4,747)

(5,126)

Acquisitions/disposals

(63,840)

(42,532)

(12,800)

(3,950)

-

Net interest

(1,970)

(9,512)

(9,927)

(10,652)

(10,649)

Equity financing

2,133

37,287

-

-

-

Dividends

-

-

-

-

-

Other

-

1,814

-

-

-

Net Cash Flow

(62,858)

873

5,841

19,270

29,184

Opening net debt/(cash)

 

 

2,115

74,998

84,985

79,144

59,873

FX

(6,730)

1,117

-

-

-

Other non-cash movements

(3,295)

(11,977)

-

-

-

Closing net debt/(cash)

 

 

74,998

84,985

79,144

59,873

30,690

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.

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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.

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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.

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Healthcare

Newron Pharmaceuticals — Pivotal progress on schizophrenia therapy

Newron, a Switzerland-quoted Italian company, is developing evenamide (30mg twice per day) to meet the major unmet need for new therapies to help both poorly managed and refractory schizophrenia patients. Evenamide would add on to existing treatments. A potentially pivotal study is due to report by Q422. Newron hopes to partner evenamide for the larger market of patients no longer gaining the full benefit of current anti-psychotic therapies. Newron may directly sell evenamide to treat identified clozapine-resistant patients. The company now gains royalties from Xadago, a Parkinson’s disease therapy. A further Xadago dyskinesia study, starting in Q122, could boost sales. Newron had cash plus loan facilities at end June totalling €36.9m plus Xadago royalties to fund it into 2023.

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