CentralNic Group — Unfazed by challenging environment

Team Internet Group (AIM: TIG)

Last close As at 20/04/2024

GBP1.39

0.20 (0.14%)

Market capitalisation

GBP360m

More on this equity

Research: TMT

CentralNic Group — Unfazed by challenging environment

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.

Max Hayes

Written by

Max Hayes

Associate Analyst

CentralNic Group_resized

TMT

CentralNic Group

Unfazed by challenging environment

FY22 trading update

Software and comp services

30 January 2023

Price

143p

Market cap

£413m

$1.24:£1

Net debt (US$m) at 31 December 2022

57

Shares in issue

288.4m

Free float

67%

Code

CNIC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

11.3

16.4

Rel (local)

(7.7)

1.2

15.6

52-week high/low

159p

111p

Business description

CentralNic Group provides the essential tools for businesses to go online, 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

FY22 results

27 February 2022

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5700

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*
(US$m)

PBT*
(US$m)

Dil. EPS
(c)

EV/EBITDA
(x)

P/E
(x)

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

US$000

2022e

2023e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Gross revenue

708,193

728,000

2.8%

77%

811,022

833,705

2.8%

15%

Net revenue

172,303

175,621

1.9%

48%

190,550

190,585

0.0%

9%

Adj. EBITDA

83,567

85,176

1.9%

84%

94,416

94,416

(0.0)%

11%

Profit before tax (norm)

68,953

69,532

0.8%

118%

79,570

79,584

0.0%

14%

Profit before tax (reported)

40,963

41,541

1.4%

2571%

48,030

41,543

(13.5)%

0%

Net income (normalised)

49,646

50,063

0.8%

96%

57,291

57,300

0.0%

14%

Basic average number of shares outstanding (m)

270

270

(0.0)%

289

288

EPS – basic normalised (c)

18.39

18.56

0.9%

65%

19.85

19.87

0.1%

7%

EPS – diluted normalised (c)

17.88

18.04

0.9%

65%

19.33

19.35

0.1%

7%

Revenue growth (%)

72.5

77.3

14.5

14.5

Gross margin (%)

24.3

24.1

23.5

22.9

Adj. EBITDA margin (%)

11.8

11.7

11.6

11.3

Adj. EBITDA/net revenue (%)

48.5

48.5

49.5

49.5

Capex

(5,416)

(5,456)

0.7%

13%

(5,622)

(5,667)

0.8%

4%

Closing net debt/(cash)

62,655

57,038

(9.0)%

(30)%

2,846

2,823

(0.8)%

(95)%

Source: Edison Investment Research

Exhibit 2: Financial summary

$000s

2019

2020

2021

2022e

2023e

Year end 31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

109,194

240,012

410,540

728,000

833,705

Cost of Sales

(66,419)

(164,894)

(292,041)

(552,379)

(643,120)

Gross Profit

42,775

75,118

118,499

175,621

190,585

EBITDA

 

 

17,921

29,394

46,251

85,176

94,416

Normalised operating profit

 

 

16,615

27,310

42,737

81,104

89,753

Amortisation of acquired intangibles

(8,299)

(13,747)

(18,291)

(21,035)

(21,035)

Exceptionals

(8,259)

(10,529)

(7,087)

1,000

0

Share-based payments

(2,878)

(5,113)

(5,006)

(5,006)

(5,006)

Reported operating profit

(2,821)

(2,079)

12,353

56,063

63,712

Net Interest

(3,869)

(9,834)

(10,798)

(11,572)

(10,169)

Joint ventures & associates (post tax)

74

79

0

0

0

Exceptionals

0

0

0

(2,950)

(12,000)

Profit Before Tax (norm)

 

 

12,820

17,555

31,939

69,532

79,584

Profit Before Tax (reported)

 

 

(6,616)

(11,834)

1,555

41,541

41,543

Reported tax

39

975

(5,097)

(21,555)

(24,671)

Profit After Tax (norm)

10,256

14,044

25,551

50,063

57,300

Profit After Tax (reported)

(6,577)

(10,859)

(3,542)

19,986

16,872

Minority interests

64

0

0

0

0

Net income (normalised)

10,320

14,044

25,551

50,063

57,300

Net income (reported)

(6,513)

(10,859)

(3,542)

19,986

16,872

Basic average number of shares outstanding (m)

175

197

227

270

288

EPS - basic normalised (c)

 

 

5.89

7.14

11.24

18.56

19.87

EPS - diluted normalised (c)

 

 

5.72

6.86

10.91

18.04

19.35

EPS - basic reported (c)

 

 

(3.72)

(5.52)

(1.56)

7.41

5.85

Dividend (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

95.0

119.8

71.0

77.3

14.5

Gross Margin (%)

39.2

31.3

28.9

24.1

22.9

EBITDA Margin (%)

16.4

12.2

11.3

11.7

11.3

EBITDA/Net Revenue (%)

41.9

39.1

39.0

48.5

49.5

Normalised Operating Margin

15.2

11.4

10.4

11.1

10.8

BALANCE SHEET

Fixed Assets

 

 

217,544

270,578

271,830

346,945

341,911

Intangible Assets

206,055

255,716

254,169

329,284

324,250

Tangible Assets

6,427

8,677

8,601

8,601

8,601

Investments & other

5,062

6,185

9,060

9,060

9,060

Current Assets

 

 

67,433

77,606

128,391

216,147

281,238

Stocks

491

1,011

895

1,513

1,866

Debtors

40,760

47,941

71,363

119,671

130,195

Cash & cash equivalents

26,182

28,654

56,133

94,962

149,177

Other

0

0

0

0

0

Current Liabilities

 

 

78,767

96,421

137,129

185,471

213,518

Creditors

75,683

89,256

117,016

183,634

211,681

Tax and social security

0

0

0

0

0

Short term borrowings

2,213

5,819

18,276

0

0

Lease liabilities

871

1,346

1,837

1,837

1,837

Long Term Liabilities

 

 

129,206

137,867

149,110

190,536

200,667

Long term borrowings

98,967

107,820

119,251

152,000

152,000

Other long term liabilities

30,239

30,047

29,859

38,536

48,667

Net Assets

 

 

77,004

113,896

113,982

187,085

208,963

Minority interests

(69)

0

0

0

0

Shareholders' equity

 

 

76,935

113,896

113,982

187,085

208,963

CASH FLOW

Op Cash Flow before WC and tax

2,989

3,997

23,360

66,648

67,241

Working capital

8,963

4,129

4,091

17,692

17,171

Exceptional & other

6,673

14,526

15,804

16,578

15,175

Tax

(2,309)

(1,957)

(2,230)

(12,878)

(14,540)

Net operating cash flow

 

 

16,316

20,695

41,025

88,040

85,047

Capex

(15,497)

(4,259)

(4,810)

(5,456)

(5,667)

Acquisitions/disposals

(60,900)

(37,065)

(18,344)

(92,150)

(12,000)

Interest paid

(1,970)

(9,512)

(8,695)

(11,572)

(10,169)

Equity financing

2,133

34,667

0

58,091

0

Change in borrowing

101,047

1,563

24,721

38,892

0

Other

(31,307)

(4,734)

(3,700)

(30,416)

(2,996)

Net Cash Flow

9,822

1,355

30,197

45,429

54,215

Opening net debt/(cash)

 

 

2,115

74,998

84,985

81,394

57,038

FX

(6,730)

1,117

(2,718)

(6,600)

0

Other non-cash movements

(75,975)

(12,459)

(23,888)

(14,473)

0

Closing net debt/(cash)

 

 

74,998

84,985

81,394

57,038

2,823

Source: CentralNic, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by CentralNic and prepared and issued by Edison, in consideration of a fee payable by CentralNic. 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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

General disclaimer and copyright

This report has been commissioned by CentralNic and prepared and issued by Edison, in consideration of a fee payable by CentralNic. 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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

More on Team Internet Group

View All

Latest from the TMT sector

View All TMT content

Research: Consumer

Treatt — Back to steady growth

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.

Continue Reading
Treatt_resized

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free