CentralNic Group — Strong growth, but lower Q2 margins

Team Internet Group (AIM: TIG)

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Research: TMT

CentralNic Group — Strong growth, but lower Q2 margins

In its trading update, management indicated that it expects H120 revenues in excess of US$110m, with adjusted EBITDA of at least US$15m. Cash increased to US$27.6m at 30 June 2020, while net debt fell marginally to US$76.4m. This would indicate relatively strong Q2 revenues of US$53.6m (Q1: US$56.4m), but a fall in Q2 adjusted EBITDA to US$6.9m (Q1: US$8.1m), meaning lower Q2 margins of 12.9% (Q1: 14.4%). On this basis, revenues would be c 11% ahead of our H120 estimates (US$99.1m), but EBITDA only c 2.7% ahead (US$14.6m) with H120 margins of 13.6% vs our estimate of 14.7%. At this stage, with limited visibility on the performance of the underlying businesses and with no forward guidance, we intend to leave our forecasts unchanged, pending review after the interim results on 1 September 2020.

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TMT

CentralNic Group

Strong growth, but lower Q2 margins

H120 trading update

Software & comp services

10 August 2020

Price

82.5p

Market cap

£158m

Net debt (US$m) at 30 June 2020

76.4

Shares in issue

192.1m

Free float

46.1%

Code

CNIC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

CentralNic Group is a leading global domain name services provider, operating through three divisions: Reseller (number two globally); Corporate; and SME. Services include domain name reselling, hosting, website building, security certification and website monetisation (added at the end of 2019).

Analysts

Richard Williamson

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5757

CentralNic Group is a research client of Edison Investment Research Limited

In its trading update, management indicated that it expects H120 revenues in excess of US$110m, with adjusted EBITDA of at least US$15m. Cash increased to US$27.6m at 30 June 2020, while net debt fell marginally to US$76.4m. This would indicate relatively strong Q2 revenues of US$53.6m (Q1: US$56.4m), but a fall in Q2 adjusted EBITDA to US$6.9m (Q1: US$8.1m), meaning lower Q2 margins of 12.9% (Q1: 14.4%). On this basis, revenues would be c 11% ahead of our H120 estimates (US$99.1m), but EBITDA only c 2.7% ahead (US$14.6m) with H120 margins of 13.6% vs our estimate of 14.7%. At this stage, with limited visibility on the performance of the underlying businesses and with no forward guidance, we intend to leave our forecasts unchanged, pending review after the interim results on 1 September 2020.

Year end

Revenue (US$m)

PBT*

(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

56.0

7.4

5.83

0.0

18.5

N/A

12/19

109.2

8.9

5.94

0.0

18.1

N/A

12/20e

202.5

18.9

6.81

0.0

15.8

N/A

12/21e

214.4

23.4

8.88

0.0

12.1

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H120 revenues of US$110m (y-o-y growth of 121%) imply a simple annualised revenue run-rate of US$220m, with H120 EBITDA of US$15m (y-o-y growth of 63%) implying annualised EBITDA of US$30m. This is a strong performance at the revenue level and leaves CentralNic well-placed to exceed our FY20 revenue estimate (US$202.5m) and achieve our FY20 estimates at the EBITDA level (US$30.7m).

We had previously factored in a slowdown in our estimates in Q220 over Q120 due to the impact of the COVID-19 pandemic, particularly affecting Team Internet’s ad-driven revenues. The slowdown appears to have had more of an impact on margins than we had anticipated, rather than revenues. We expect growth gradually to pick up again in H220, with margins normalising. Net debt fell less than we estimated to US$76.4m vs our estimate of US$73.9m as at 30 June 2020. This variance is largely due to CentralNic’s listed bond being euro-denominated, with the euro appreciating against the dollar over the quarter.

Given H220 visibility remains limited at present, we intend to leave our current estimates unchanged for now, pending review after the H120 interim results.

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