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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.
CentralNic Group |
Organic growth continues to accelerate |
Q3 trading update |
Software & comp services |
1 November 2021 |
Share price performance
Business description
Next events
Analysts
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* |
EPS** |
DPS |
P/E |
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
|
|
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