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Last close As at 25/03/2023
GBP1.37
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Research: TMT
CentralNic’s FY22 update confirmed accelerating momentum towards the end of the year, with revenue and adjusted EBITDA ahead of our forecasts, which we raised on 21 December. Its ability to effectively match advertisers with high-intent consumers, alongside global market demand for privacy-safe customer targeting solutions, continues to drive Online Marketing. Economies of scale and acquisitions have strengthened its operating leverage, leading to improved profitability. CentralNic’s attractive cash dynamics have supported a significant reduction in net debt, which we believe will continue to fall in FY23 in line with expected profit growth.
CentralNic Group |
Unfazed by challenging environment |
FY22 trading update |
Software and comp services |
30 January 2023 |
Share price performance
Business description
Next events
Analysts
CentralNic Group is a research client of Edison Investment Research Limited |
CentralNic’s FY22 update confirmed accelerating momentum towards the end of the year, with revenue and adjusted EBITDA ahead of our forecasts, which we raised on 21 December. Its ability to effectively match advertisers with high-intent consumers, alongside global market demand for privacy-safe customer targeting solutions, continues to drive Online Marketing. Economies of scale and acquisitions have strengthened its operating leverage, leading to improved profitability. CentralNic’s attractive cash dynamics have supported a significant reduction in net debt, which we believe will continue to fall in FY23 in line with expected profit growth.
Year end |
Revenue (US$m) |
Adjusted EBITDA* |
PBT* |
Dil. EPS |
EV/EBITDA |
P/E |
12/20 |
240.0 |
29.4 |
17.6 |
6.9 |
19.3 |
25.8 |
12/21 |
410.5 |
46.3 |
31.9 |
10.9 |
12.3 |
16.2 |
12/22e |
728.0 |
85.2 |
69.5 |
18.0 |
6.7 |
9.8 |
12/23e |
833.7 |
94.4 |
79.6 |
19.4 |
6.0 |
9.1 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
FY22: Ahead of consensus and our forecasts
CentralNic expects to report revenue of $728m, up 77% y-o-y and up 60% y-o-y organically. Revenue was also ahead of both our forecast and market consensus of $708m. Management expects adjusted EBITDA of more than $85m, equating to growth of at least 84% y-o-y and c 2% higher than our previous forecast. FY22 adjusted EBITDA to our net revenue estimate of $176m, which deducts costs directly passed onto its customers, was 48.5%, 9.5pp higher year-on-year as a result of stronger operating leverage from its scaling Online Marketing business and accretive acquisitions made in the year. Net debt decreased by $24m to $57m in the year, supported by expanding profit margins and an adjusted operating cash conversion (normalised operating profit/operating cash flow) in excess of 100%.
Forecasts revised
We have upgraded our FY22 revenue and profit forecasts based on the trading update. While we expect the same FY22 structural tailwinds to continue to drive demand in FY23, we believe revenue growth will be slower at 15% y-o-y as management moves its focus from high volumes of M&A to further strengthening its balance sheet and increasing returns to shareholders. We have left our FY23 profit and cash forecasts materially unchanged, reflecting potential operating cost pressures, particularly wage inflation and hiring needs.
Valuation: Significant upside potential in FY23
CentralNic continues to trade at a discount to its Online Marketing peers on EV/EBITDA across FY22e and FY23e, at an average discount of 65%. Its shares performed well following management’s decision to review its capital allocation within the business, with a higher focus on shareholder returns. We expect the discount to peers to reduce as management delivers on this strategy in FY23, alongside further top-line and profit growth.
Summary of changes to estimates
For FY22, we have moved our gross revenue, adjusted EBITDA and net debt position to in line with management’s expectations for the year, which are slightly higher than our previous forecasts and market consensus, both of which were revised upwards in December 2022.
For FY23, we have increased our gross revenue estimate, maintaining the same year-on-year growth rate but reflecting the higher FY22 base. Our profit expectations for the year are materially unchanged, with our net revenue to adjusted EBITDA remaining at 49.5% for FY23. We believe management’s updated strategy, which includes improving efficiencies in the business, may be partially offset by potential further wage inflation and hiring needs.
Our FY23 net debt position is materially unchanged at $2.8m. The 9% reduction in our FY22 net debt estimate has been offset by our revised FY23 contingent consideration expectations for VGL and Aporia. Our estimate excludes potential M&A in FY23, although we believe the company may still make some targeted acquisitions in the year.
Exhibit 1: Changes to estimates |
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Source: Edison Investment Research |
Exhibit 2: Financial summary |
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Source: CentralNic, Edison Investment Research |
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Research: Consumer
Treatt’s AGM trading update suggests a more normal and steady pattern of trading has resumed, following the setbacks that caused the profit warning last August. Management has clearly taken rapid steps to address the issues that were identified, and indeed this was already evident in October’s FY22 pre-close trading update. Performance remains in line with management expectations and our forecasts are unchanged.
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