CentralNic Group plc (LON:CNIC) LTM pro forma revenue growth accelerated again to 62% in Q2 2022, resulting in revenue of $335m and Adjusted EBITDA of $38m in H1. The company upgraded guidance, which appears very conservative. Even in the unlikely case of a sharp downturn leading to 16% sequential decline in Adjusted EBITDA in H2, the company would still meet revised guidance. We raise our 2022 revenue forecast by 8% to $617m and our Adjusted EBITDA by 4% to $70m and see the potential for strong earnings outperformance. Even based on our conservative forecasts, shares appear attractively valued at 6x 2022 EBITDA, 8x P/E and 12.5% FCFF yield. With increased estimates our valuation for CentralNic is lifted to 221p from 195p.
H1 trading update
¨ Long track record of accelerating growth: LTM pro forma revenue growth was an impressive 62% in Q2 and extends CentralNic’s long track record of accelerating growth from 53% in Q1, 37% in 2021 and 20% in 2020. There appears to be no signs of the potential weakness in CentralNic’s Online Marketing market that may be factored into the share price.
¨ Strong profits and cash generation: Adjusted EBITDA is expected to be $38m, resulting in margin of c.11.3% and in line with margins in 2021. Net debt including foreign exchange hedge liabilities is expected to be $65m, which is down by only $5.7m from $70.7m at the end of Q1. The relatively small decline in net debt is due to a sizable increase in hedging liabilities to $16.6m from $9.4m at the end of Q1. Excluding FX hedging liabilities, net debt would have fallen by $12.9m, which is c.66% of Q2 Adjusted EBITDA (c.$19.5m). The company estimated that adjusted operating cash conversion was over 100% in H1 2022.
¨ Guidance factors in extraordinary downturn: Given the strong H1 results, the company is now confident that full year 2022 results will be at least at the high end of the current market expectations ($603m revenue and $70m Adjusted EBITDA). This revised guidance factors in an extraordinary downturn in H2 2022, equivalent to sequential revenue decline of 20% and Adjusted EBITDA decline of 16%.
¨ Conservative forecast upgrade: We conservatively forecast $617m of revenue in 2022, 2% above the top end of current consensus, and Adjusted EBITDA of $70m, in line with the top end of current consensus. We estimate 37% pro forma growth in 2022, well below 62% pro forma growth already achieved in H1. (See charts overleaf for details.)
¨ Value for growth: Based on our conservative estimates, shares trade at only 6x 2022 EBITDA, 8x P/E and 12.5% FCFF yield. We raise of our DCF valuation from 195p to 221p, which is about 2x the current share price. Note that CentralNic Group shares were included in the AIM 100 and AIM UK 50 indices on 20 June 2022.
Summary financials
| Price | 113.5p |
| Market Cap | £327.6m |
| Shares in issue | 289m |
| 12m Trading Range | 86p – 154p |
| Free float | 73% |
| Next Event | Q2 results – 30 August |
Financial forecasts
| Yr end Dec ($’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 410.5 | 617.1 | 654.1 | 693.4 |
| YoY growth (%) | 71 | 50.3 | 6 | 6 |
| Gross profit | 118.5 | 170.8 | 180.5 | 190.9 |
| Adj. EBITDA | 46.3 | 70 | 75.7 | 79.7 |
| YoY growth (%) | 57.3 | 51.3 | 8.1 | 5.3 |
| EBITDA margin (%) | 11.3 | 11.3 | 11.6 | 11.5 |
| EBITDA margin | 39 | 41 | 41.9 | 41.8 |
| (Net revenue) (%) | ||||
| EPS (c) basic adj. | 11.8 | 17.4 | 18.8 | 20.2 |
| DPS (p) | – | – | 0.8 | 1.8 |
| Net cash (debt)+ | -81.4 | -51.2 | -11.5 | 34.6 |
| EV/EBITDA (x) | 8.3 | 6 | 5.2 | 4.4 |
| EV/EBIT (x) | 9 | 6.4 | 5.5 | 4.6 |
| P/E (x) | 11.6 | 7.8 | 7.2 | 6.7 |
| FCFF yield (%) | 9.1 | 12.5 | 13.2 | 17.4 |
